The Midas Touch

By Ben Traynor

BullionVault

Friday 24 February 2012,08:30 EST

Silver & Gold Looking at Gains on Week Despite “Dull Markets” and “Muted Demand”in India and China

U.S. DOLLAR gold bullion prices held steady around $1780 an ounce Friday morning London time, having fallen slightly from yesterday’s 3-month high.

Silver bullion meantime hit its highest level since September, rising to $35.74 per ounce just after London opened.

“Silver has finally broken out of its sideways range,” says Russell Browne, technical analyst at bullion bank Scotia Mocatta.

“We have also cleared the previous resistance at $35.16…and this level should now start to act as support.”

Stocks and commodities were relatively flat going into this weekend’s G20 meeting, while government bond prices ticked higher.

Heading into the weekend, gold bullion at Friday lunchtime looked set for a weekly gain of over 3%, with silver looking at a gain of over 6% on last Friday’s close.

However “the market is still dull” says gold dealer PinakinVyas, assistant vice president at IndusInd Bank in Mumbai, which imports gold bullion.

“Gold prices have moved up $40 [in two days], so people will take time to digest these prices.”

“While one would not expect strong physical demand as prices push higher,” adds a note from Swiss investment bank UBS, “the overall weakness in physical demand of late has caught our attention…in India, volumes have eased this week.”

UBS also sees signs of slower activity on the Shanghai Gold Exchange.

“SGE premiums have been hovering at the lower end of the range, reflecting consistently muted demand out of China post-Lunar New Year.”

The ongoing Eurozone crisis is expected to dominate discussions at this weekend’s meeting of G20 finance ministers and central bank governors in Mexico. Eurozone leaders will be encouraged to increase the size of the so-called ‘firewall’, the European Stability Mechanism bailout fund, before asking for help from the International Monetary Fund, the Financial Times reports.

“IMF resources cannot be a substitute for further steps by the Eurozone to support its currency,” UK chancellor George Osborne and Japanese finance minister Jun Azumi wrote in a jointly-authored FT article yesterday.

“The Eurozone must increase the resources of its firewall so the markets can be reassured that it can respond to any eventuality.”

“Until Europe starts showing more signs that it’s getting its act together,” adds Mohamed El-Erian, chief executive of world’s largest bond fund Pimco, in the same organ Friday, “the other G20 members must resist [pressure for the IMF to lend].”

Germany remains opposed to increasing the size of the €500 billion ESM, due to become operational in July, by adding to it funds that remain in the existing temporary bailout vehicle the European Financial Stability Facility.

The German Bundestag is due to vote Monday on whether to approve the second Greek bailout deal earlier this week, while Eurozone leaders are set to discuss the ESM’s size at a summit next Thursday.

Germany appears to be the only Eurozone nation opposed to an increase after Dutch finance minister Jan Kees de Jager expressed his support for such a move on Wednesday.

“We’re aware we’re pretty isolated,” one German source tells newswire Reuters.

“But this has to be a unanimous decision.”

Another source told the newswire that domestic politics creates a disincentive for German politicians to support the idea:

“It doesn’t help anyone to agree on something that isn’t going to go through the Bundestag.”

Elsewhere in Europe, the European Commission yesterday revised down its growth forecasts for the Eurozone. It now expects the single currency area as a whole to see its economy shrink 0.3% in 2012 – compared to its forecast last autumn for 0.5% growth.

Spain’s government has asked the Commission to ease its budget deficit target following the revised forecasts.

Eurozone banks could seek to borrow around €470 billion at next week’s 3-Year longer term refinancing operation by the European Central Bank, according to the median estimate of a survey by news agency Bloomberg. This would represent a small decline from the amount borrowed at December’s LTRO, as well as a dig drop from earlier estimates that €1 trillion.

ECB president Mario Draghi has stressed that there is “no stigma” in borrowing at the LTRO, and that “the facilities are there to be used”.

“It is really monetary expectations that are making the investment rationale for gold,” reckons BayramDincer, analysts at LGT Capital Management.

“Conditional on those expectations, it makes sense, but the potential for disappointment, and price consolidation, is a given.”

Across the Atlantic, US Mint sales of American Eagle gold bullion coins so far this month are down 87% on January’s total by weight, according to US Mint data.

So far this year, 4.4tonnes of the gold coins – the most popular gold investmentcoin produced by the US Mint – have been sold.

By comparison, the US Mint sold over seven tonnes in the first two months of 2011.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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By Ben Traynor

BullionVault

Monday 20 February 2012,08:30 EST

Gold’s “Consolidation Phase” Continues, “Time to Deliver” for Euro Leaders, China “Shows Growth is Priority”

WHOLESALE MARKET gold bullion prices held above $1730 an ounce in Monday morning’s London trading – roughly in line with where gold has been for much of February – while European stocks and commodities edged higher amid hopes that policymakers might finally approve Greece’s second bailout. US markets are closed for a holiday.

Silver bullion prices were also fairly flat this morning around $33.50 per ounce.

Earlier on Monday, gold bullion prices jumped $14 an ounce in Asian trading after China’s central bank eased its monetary policy stance over the weekend.

“The rally lasted only for a very short period of time,” says one gold bulliondealer in Hong Kong.

“Once we traded [higher], resting [sell] orders took over and stabilized the market. It seems despite various bits of precious-positive news, the market is still in a consolidation phase.”

The People’s Bank of China announced Saturday that it is cutting the reserve requirement ratio – which dictates the amount banks must hold in reserve as a proportion of their assets – by half a percentage point. Large commercial banks will see their RRR fall to 20.5% as a result.

The cut “reflects that stimulating economic growth is currently the government’s priority” reckons HCBS economist Ma Xiaoping, who adds that it will “help release liquidity” to the tune of around 400 billion Yuan ($63.5 billion).

Elsewhere in China, the Shanghai Gold Exchange announced Monday it is cutting its gold trading fees on a number of contracts. It follows last week’s announcement by the Shanghai Futures Exchange that it was lowering its margin on gold futures contracts with effect from the start of next month.

Singapore meantime will make investment grade gold bullion exempt from a 7% sales tax with effect from October, Reuters reported Monday, citing industry sources. 

“I think this is really going to change the landscape in Singapore,” says one gold dealer.

“Asset managers will [be] very excited. The trend in the last three years is that people are moving to physical hard assets from paper.”

Eurozone finance ministers are meeting in Brussels today to discuss putting the finishing touches on Greece’s €130 billion second bailout. 

“All the elements are in place,” France’s finance minister Francois Baroin told French radio this morning.

Reports suggest there remains uncertainty over how the entire package will be financed. For example, the Financial Times reports that the European Central Bank has been asked to make up a €6 billion shortfall by agreeing to forego some profits on its Greek bond holdings – bought at below-face-value prices on the open market – which would have the effect of easing Greece’s debt burden.

However, “the gut feeling is that this is going to go through” one Eurozone official tells newswire Reuters.

“Everyone feels the pressure this time to deliver… I don’t see anybody wanting to be responsible for pulling the plug on the deal at this late stage.”

“There is [though] scope for events to disappoint,” warns Neil MacKinnon, London-based global macro strategist at VTB Capital.

Economists at Citigroup say they expect today to bring agreement on a bond swap to reduce Greece’s debts, but that final approval of the complete package may be delayed until after the next European leaders’ summit on March 1.

The International Monetary Fund will only contribute €13 billion to a second Greek bailout – equivalent to 10% – the FT reports, much less than its contribution to previous Eurozone bailouts. Relative to its IMF contribution, Greece already holds the all-time record for the amount borrowed from the IMF, the FT points out.

Iran has ceased its oil exports to Britain and France, its oil ministry announced Sunday. The move follows the imposition of sanctions by the European Union. Monday’s FT reports that Iran is struggling to find buyers for its oil and may have to resort to cutting its output or storing it in tankers, so-called floating storage.

The US Congress Friday approved a bill extending a payroll tax cut and unemployment benefits through to the end of 2012.

“Given that it had until February 29 to do this it was not a bad effort from policymakers,” note Standard Bank currency analysts Steve Barrow and Jeremy Stevens, who add that while the extension adds $100 billion to the US deficit, not extending the tax cuts and benefits could have costs the economy up to one percentage point in growth this year.

In New York meantime the difference between bullish and bearish contracts held by Comex gold futures and options traders – the so-called speculative net long – fell over the week ended last Tuesday for the first time since the week ended January 3.

The drop in the spec net long “may mark a consolidation phase in the gold rally in the absence of new price drivers,” says the latest note from precious metals consultancy VM Group.

The volume of gold bullion held to back shares in the world’s largest gold ETF, the SPDR Gold Trust (GLD), rose to its highest level since December 14 last week. By contrast, the iShares Silver Trust (SLV), the world’s biggest silver ETF, saw itssilver bullion holdings decline slightly.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Ben Traynor

BullionVault

Friday 17 February 2012,09:00 EST

“Quiet Session” Sees Gold and Silver Flat, ECB Could Create “Dangerous” Two Tier Debt Market

SPOT MARKET prices for buying gold held just above $1730 an ounce during flat trading this morning in London, as speculation continued over whether a Greek bailout will be agreed next week.

Prices for buying silver were also very flat – hovering above $33.50 an ounce – as were those for commodities and stocks ahead of President’s Day in the US on Monday.

“A quiet session,” said one Hong Kong gold dealer this morning.

Heading into the weekend, the price of buying gold was up less than half of one percent on the week by Friday lunchtime, with silver also showing very little movement from last Friday’s close.

German finance minister Wolfgang Schaeuble has reportedly called for Greece to be allowed to default. Chancellor Angela Merkel is firmly against such a development, according to press reports.

“Schaeuble doesn’t think the Greeks can deliver any more [austerity measures],” an official from Merkel’s CDU party tells the Financial Times. Schaeuble has also this week suggested Greece should postpone general elections scheduled for April and install a technocrat government.

Eurozone finance ministers are due to meet Monday to discuss Greece’s second bailout, with Germany, the Netherlands, Luxembourg and Finland – all rated AAA by ratings agencies – calling for increased permanent supervision of Greece’s fiscal affairs.

“The one thing we should take away from Lehman Brothers,” former US Treasury secretary Henry Paulson said this week, “is you don’t want a big systemic institution to fail in a messy way, and you clearly don’t want that to happen with a [Euro] member state.”

“We expect [gold's sideways] trend to continue into the weekend, as participants remain wary of taking on new positions ahead of Monday’s Eurozone meeting,” says today’s note from Standard Bank commodities strategist Marc Ground.

The German parliament is expected to vote on any bailout deal on February 27. If enough members of Merkel’s coalition government oppose the measure, she may need to rely on opposition Social Democrat and Green votes.

Elsewhere in Germany, Merkel’s personal choice for the ceremonial role of German president resigned today amid allegations he misled parliament over a €500,000 loan to buy a house.

The European Central Bank meantime is expected to swap its existing Greek bonds for new ones that would not tie it to any collective action clauses to which private investors would be subject.

This means the ECB would be protected from taking losses on its holdings – an event that ECB

president Mario Draghi has said would amount to monetization of government debt.

“In Europe, all bond holders are equal, but the ECB is more equal than others, apparently,” says Thomas Costerg, London-based economist at Standard Chartered bank.

“This could set a dangerous precedent, and, by creating a de-facto two-tier market, this could discourage investment in other peripheral debt markets.”

If private sector Greek bond losses are deemed to be involuntary, this could also trigger payments on credit default swaps, which act as a form of debt insurance.

“The probability of triggering CDS has increased because the ECB has protected itself,” says Padhraic Garvey, head of developed-market debt at Amsterdam-based ING Groep.

The United States meantime has no plans to give additional money to the International Monetary Fund, US Treasury undersecretary for international affairs LaelBrainard told the Senate banking Committee Thursday.

US consumer price inflation dropped to an annual rate of 2.9% last month, according to figures published Friday – down from 3.0% in December.

China’s central bank may have been buying gold in the fourth quarter of last year, according to a report in Friday’s FT. 

Elsewhere in China, a huge stockpile of silver bullion has built up in the country, according to investment bank analysis this week.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

By Ben Traynor

BullionVault

Friday 10 February 2012,09:00 EST

Gold Down on Week Following Rejection of “Weak” Greek Reforms, Draghi Denies “Stigma” of ECB Lending

U.S. DOLLARgold prices were on course for a second weekly fall Friday lunchtime in London, heading down towards $1700 an ounce following European ministers’ rejection yesterday of Greece’s latest austerity reforms.

Silver prices also traded lower, hitting $33.27 per ounce – 1.4% down on last week’s close.

Stocks, commodities and the Euro all fell, while the Dollar gained along with prices for major nation government bonds.

“Gains in the US Dollar and consistent disappointment from the European Union regarding the Greece debt deal are curbing any gains in gold,” reckons PradeepUnni, senior analyst at commodity brokerage Richcomm Global Services in Dubai.

“People are just throwing in the towel because we didn’t see a rally,” adds AfshinNabavi, senior vice president at Swiss precious metals refiner MKS.

Spot market gold prices were down 1.2% for the week Friday lunchtime, hitting $1706 per ounce, their lowest level since Jan.25, the day the US Federal Reserve confirmed its policymakers expect near-zero interest rates until at least late 2014.

Eurozone finance ministers yesterday dismissed a reported €3.3 billion package of spending cuts presented to them by Greece’s leaders, who have now been asked to find an additional €325 million in savings.

“No disbursement before implementation,” said Luxembourg prime minister Jean-Claude Juncker, who chairs the Eurogroup of single currency finance ministers.

“We can’t live with this system where promises are repeated and repeated and repeated and implementation measures are sometimes too weak.”

The Eurogroup also suggested that there could be greater external involvement in the Greek economy, with the aim of improving tax collection and speeding up privatization of state assets. German finance minister Wolfgang Schaeuble meantime said the ministers “will certainly not discuss a top-up” of Greece’s €130 billion second bailout.

“If we see the salvation and future of the country in the Euro area,” said Greek finance minister Evangelos Venizelos, “[then] we have to do whatever we have to do to get the program approved.”

“Venizelos, like some officials before him, is playing the ‘in or out’ card,” says this morning’s note from Standard Bank currency analysts Steve Barrow and Jeremy Stevens.

“We suspect [the Eurogroup's conditions] will be delivered, but not without some acrimony.”

Thousands took to the streets in Athens Friday as unions called a two-day protest strike, the second this week following Tuesday’s 24 hour action.

“With Greek elections planned for April 2012, it may be the case that the politicians who sign off on agreements to receive Euroland aid next week may be replaced quite swiftly by less amenable types,” notes one gold bullion dealer here in London.

If the second bailout is not approved, Greece will be unable to pay over €14 billion of debt that matures on March 20.

“[Greek politicians] must get this deal agreed really within the next few days to enable them sufficient time and have the new bailout money disbursed before that bond is due,” says Tony Stringer, managing director of global sovereigns at ratings agency Fitch.

“If they don’t manage to achieve that, then it could be in the realm of a disorderly default.”

European Central Bank president Mario Draghi meantime denied a suggestion put to him at Thursday’s  press conference that the ECB’s three year longer term refinancing operation – at which European banks can borrow from the central bank at low rates – represents “hidden government financing” that some banks would prefer not to access.

Deutsche Bank chief executive Josef Ackermann said last week that: “the fact that we have never taken any money from the government has made us, from a reputation point of view, so attractive with so many clients in the world that we would be very reluctant to give that up.”

“There is no stigma whatsoever attached to these facilities,” said Draghi yesterday, adding that some bankers’ statements were “statements of virility” and that many banks whose chiefs have made such comments have actually accessed the LTRO or other ECB credit facilities.

The ECB also announced Thursday that it is changing the rules on collateral banks can post against their ECB borrowing to widen eligibility, although the Governing Council decision was not unanimous.

Regulated commodity futures exchange CME has lowered its margin on gold futures trades, along with margins on silver and copper.

“The announcement…has failed to inspire much interest [in gold]” says Marc Ground, commodities strategist at Standard Bank.

CME raised its margin on gold trading in both August and September last year, “contributing to the sharp fall” in gold prices seen over those weeks, according to a note from Commerzbank this morning.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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By Ben Traynor

BullionVault

Friday 3 February 2012,09:30 EST

Bernanke’s Comments “Lend Support” to Gold, But Precious Metals Dip Following Strong US Jobs News

SPOT MARKET gold prices slipped back below $1750 an ounce while stock markets rallied strongly following the release of better-than-expected US jobs figures on Friday.

The Bureau of Labor Statistics nonfarm payrolls report, published on Friday, shows that the US added a net 243,000 nonagricultural private sector jobs last month. In addition, both November and December’s nonfarm figures were revised upwards. The unemployment rate fell to 8.3%, down from 8.5% the previous month.

Silver prices also fell following the nonfarm announcement, while the US Dollar saw an immediate gain against major currencies such as the Pound, Euro and Yen.

Earlier on Friday Dollar gold prices hit their highest level in 11 weeks at $1762 per ounce, a level not seen since mid-November, following US Federal Reserve chairman Ben Bernanke’s appearance before Congress on Thursday.

“We are not seeking higher inflation,” Bernanke told the House Budget Committee, in response to comments from Republican representative Paul Ryan, who said he was “greatly concerned to hear the Fed recently announce that it would be willing to accept higher-than-desired inflation in order to focus on the [employment] side of its dual mandate.”

“We do not want higher inflation and we’re not tolerating higher inflation,” responded Bernanke, although elsewhere in his testimony he warned that “risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home.”

Fed policymakers revealed last week that a majority of them expects interest rates to remain near zero for at least the next three years. Bernanke added yesterday that the speed and aggressiveness of any future rate rises “may depend to some extent on the balance” between maintaining employment and pursuing price stability.

“These comments lent support to gold,” reckons James Steel, chief commodities analyst at HSBC in New York, noting that the Fed could opt for additional quantitative easing if progress towards full employment was inadequate.

US inflation as measured by the consumer prices index fell to 3.0% in December, down from 3.4% the previous month, but up from 1.1% 12 months earlier.

“As every day goes by, I see deflation in the things you own and inflation in the things you need,” said hedge-fund partner Kyle Bass at a meeting of the University of Texas’s $25.7 billion Investment Management Co. (Utimco) in Austin, Texas on Thursday. 

“I’m against selling any of the gold,” Bass said, referring to the $1.2bn whichUtimco now owns in physical gold bars after switching out of futures contracts then worth $992m in April 2011.

Over in Europe, Greece’s finance minister Evangelos Venizelos said Thursday that the European Central Bank would need to take losses on its Greek government debt holdings if Greece is to achieve the goal of reducing its debt-to-GDP ratio to 120% by 2020.

Greece is yet to agree a deal with its private creditors over the size of losses they will take. The lack of a deal throws into doubt Greece’s €130 billion second bailout, without which it will be unable to pay out on maturing bonds next month.

“Greece needs a new program, there’s no question about that, but Greece must create the conditions for it,” German finance minister Wolfgang Schaeuble said Thursday.

“We can’t pay into a bottomless pit.”

“Precious metals are enjoying some support from safe-haven demand as issues in the Eurozone once again weigh on investors’ minds,” says Marc Ground, commodities strategist at Standard Bank, who sees resistance for gold prices at $1768 per ounce.

Gold jewelers in India meantime the government to raise the duty drawback – the amount of duty exporters can claim back from the Department of Revenue – applicable to the gems and jewelry sector. The request from the Federation of Indian Exports Organisations follows the government’s decision last month toincrease duty on gold bullion imports and switch to an ad valorem tax, which takes the form of a percentage of value rather than a discrete amount by weight.

Heading into the weekend, Dollar gold prices looked set to record their fifth straight weekly gain.

The gold price in Euros meantime was up 1.8% for the week by Friday lunchtime, and closing in on the four-month high touched earlier on Friday at €43,098 per kilo (€1340 an ounce).

Like those for gold, Dollar silver prices also hit their highest levels since November Friday morning, at $34.44 per ounce.

Based on London Fix prices, gold is up nearly 15% since the end of 2011, while silver is up by more than 19%. Despite silver’s rise, however, the world’s largest silver ETF, the iShares Silver Trust (ticker: SLV) has seen its holdings of bullion rise just 0.2% since the start of 2012.

By contrast, the amount of gold held to back shares in the SPDR Gold Trust (ticker: GLD), the world’s largest gold ETF has grown 1.8% over the same period, rising to its highest level since December 20 yesterday at 1277 tonnes.

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.