London Gold Market Report
U.S. DOLLAR prices to buy gold rose to $1586 per ounce Friday morning in London, reversing losses from the previous two days but leaving gold more than 2% below its level of a month ago.
“Gold has been a range trade with a bearish bias given the progressively lower highs since late February,” says the latest technical analysis from bullion bank Scotia Mocatta.
Prices to buy silver meantime climbed briefly above $27.50 per ounce Friday morning, as stocks, commodities and government bonds all ticked higher – with the exception of Spanish and Italian stock markets, which dipped following news of a ratings downgrade for Italy.
Heading into the weekend, prices to buy gold with Dollars were more or less unchanged on the week, while silver prices were up around 25¢ from last Friday.
Euro gold prices meantime looked set for a 0.7% weekly gain, with the Euro/Dollar exchange rate dipping back below $1.22 this morning.
New data from China today said the world’s second-largest economy grew at an annual rate of 7.6% in the second quarter of the year, slowing down from 8.1% in Q1, according to official GDP data.
“The expectation for weakness in the second quarter was pretty strong,” says BNP Paribas economist Ken Peng in Beijing.
Fixed asset investment by state firms however showed a 13.8% annual increase in June – up from 10.0% a month earlier – while overall fixed investment growth ticked higher to 20.4%, up from 20.1% in May.
“The investment number is the surprise,” says BNP’s Peng. “There appears to have been a significant pick-up. That is [stimulus] policy beginning to work…we are looking for a small rebound in the third quarter and a bigger rebound in the fourth quarter.”
China’s central bank has twice cut interest rates in recent weeks.
“In China,” says today’s commodities note from Commerzbank, “bank deposits are likely no longer to be nominally profitable soon, following the recent reduction of the deposit interest rate by the central bank to 3%.
“We continue to regard gold as an attractive means of protecting one’s capital against inflation…Negative real interest rates on the one hand and the high [inflation] risks on the other should lend support to the price of gold in the medium to long term.”
China has overtaken India in recent months to become the world’s biggest source of demand to buy gold.
Over in Europe, Italy managed to sell €5.25 billion of government debt Friday, despite being downgraded last night by ratings agency Moody’s. The average yield on 3-year debt at today’s auction was 4.65% – down from 5.3% paid last month at an auction of similar bonds.
A day earlier, Moody’s downgraded Italy to two notches above junk, and one notch above Spain.
“Italy’s near-term economic outlook has deteriorated, as manifest in both weaker growth and higher unemployment, which creates risk of failure to meet fiscal consolidation targets,” a Moody’s statement said.
“[This] in turn could weaken market confidence further, raising the risk of a sudden stop in market funding.”
In Madrid, Spain’s government could take control of budgets in regions that fail to meet deficit targets, Spanish budget minister Cristobal Montoro said Thursday. The national government may in return help regional governments to finance themselves, though Montoro denies this would take the form of jointly-issued debt.
“This idea of hispabonds in the sense of mutualizing risk has never been on table,” said Montoro.
Germany’s government last month agreed to underwrite regional debt, and from next year states could start issuing debt for which they and the federal government are jointly liable.
Here in London, the Bank of England and HM Treasury have launched their Funding for Lending scheme, which aims to increase lending by financial institutions to the “real economy” by up to £80 billion.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
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