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.
By Ben Traynor
BullionVault
Friday 27 January 2012,08:30 EST
Gold “Has Foundation to Build Next Move Higher” Following FOMC “Catalyst”, Slow Physical Demand “Explains Gold’s Resistance at $1730″
WHOLESALE MARKETgold prices were headed for their biggest one-weekrise since the start of December Friday lunchtime in London, climbing back through $1720 an ounce – a weekly gain of over 3%.
Silver prices meantime hovered around $33.60 per ounce – 4.2% up on last week’s close – while other stocks and commodities were broadly flat and US Treasury bond prices slipped.
A day earlier, gold prices hit a 7-week high at $1730 per ounce before easing in Friday’s Asian session.
“Lack of physical demand partly explains the inability of gold to make a sustained move beyond the $1730 level,” says Standard bank commodities strategist Marc Ground, citing this week’s Chinese Lunar New Year holiday as impacting demand from China, Singapore, Malaysia and Indonesia.
“[But] while slowing physical demand might provide some resistance during price rallies, we do not feel that it would be the cause of prices moving significantly lower.”
“The [physical] market has been like a yo-yo,” one Singapore dealer tells newswire Reuters.
“I think it’s a good time to buy gold…but clients are all cautious. They are doing enough to roll their money but keeping it all for the possibility of buying back.”
“Maybe it’s better to wait until Monday,” reckons another Singapore dealer.
“The Chinese market reopens and [we will] see whether they will buy some more gold or they will take profits.”
Based on PM London Fix prices, gold by Friday lunchtime looked set for its biggest weekly gain since the week ended December 2 last year.
That week saw gold’s biggest single-day Fix-to-Fix gain of recent months, whengold prices rose 2.5% on 30 November last year. Between that day’s AM and PM Fix, six of the world’s central banks announced a co-ordinated move lower the cost of Dollar funding for to the banking system.
This week meantime saw the Federal Reserve’s Federal Open Market Committee begin publishing members’ interest rate projections on Wednesday. The majority of FOMC members expect rates to remain at or below 1% until at least the end of 2014.
“The market attitude towards gold for most of January could be summed up in two words: cautious optimism,” says the latest precious metals note from UBS.
“Investors were reluctant to add to positions aggressively as memories of the disappointment in Q4 lingered…A fresh catalyst was needed and we think the FOMC outcome on Wednesday fit the bill.
More accommodative policy is a very good foundation for gold to build on the next move higher.”
Between Wednesday’s London PM Fix and Thursday’s AM Fix – during which time the Fed made its announcement – gold prices gained 3.8%. Notwithstanding the New Year break, this was the biggest Fix-to-Fix gain since September 27.
That rise in gold prices coincided with reports that European policymakers were preparing a move to recapitalize the continent’s banks – though the reported proposals were not adopted.
European leaders meantime are “just about to close a deal on private sector involvement between the Greek government and the private-sector community,” European commissioner for economic and monetary affairs Olli Rehn said Friday, speaking at the World Economic Forum in Davos, Switzerland.
A Greek deal would pave the way for Greece’s second bailout, agreed last October and worth €130 billion – without which Greece will not be able to repay €14.5 billion of maturing debt on March 20.
Iran – which was earlier this week hit by fresh sanctions on oil, diamond andgold dealing – has said that it may immediately halt its oil exports to Europe to pre-empt a European Union ban due to come into force July 1. Greece is thought to import around one third of its oil from Iran.
Two weeks after ratings agency Standard & Poor’s downgraded them to junk status, yields on 10-Yeat Portuguese government bonds hit their highest levels since the crisis began Friday morning when they traded at 15.4% – almost double the yield on equivalent Irish debt.
Portugal’s 5-Year bond yields breached 20%.
“It makes it impossible for Portugal to access debt markets in 2013,” says JPMorgan rate strategist NikolaosPanigirtzoglou.
“It’s a country that still relies on the official sector in terms of financing its current account deficit and repayments and this makes it certain that we’re going to get a second bailout for Portugal later this year.”
“The market is asking whether Portugal is really just like Greece,” adds Richard Batty, strategy director at Standard Life Investments.
A survey published this morning by British free newspaper Metro finds that 68% of British people believe the Euro will collapse.
French bank SocieteGenerale’s latest Hedge Fund Watch also finds that hedge funds are shorting the single currency “like never before”, the Financial Times Alphaville blog reports.
The Euro however rallied against the Dollar Friday morning, breaking back through $1.31.
Euro gold prices were flat Friday morning, holding above €42150 per kilo (€1310 per ounce) – still a 1.7% gain for the 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
Monday 23 January 2012,08:30 EST
Gold TouchesSix-Week High asTechnicals”Turning More Bullish”, Banking Sector Negotiators “Hopeful” for Agreement on Greek Debt
THE U.S. DOLLARcost to buy gold hit a six-week high of $1677 an ounce Monday morning in London, as stock markets, commodities and the Euro all pushed higher and US Treasury bond prices dipped.
“Near term technical have turned more bullish [for gold],” says the latest technical analysis from Scotia Mocatta, though it sees “psychological resistance looming at $1700.”
The price of buying gold in Euros however fell to €41375 (€1287 per ounce) – down slightly on Friday’s close – as European finance ministers met to discuss Greek debt and a proposal to relax banking rules.
The difference between long contracts to buy gold and short contracts held by noncommercial gold futures and options traders on New York’s Comex exchange – the so-called speculative net long – rose for the second week running in the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission.
There was no change last week however in the volume of gold held to back shares in the SPDR Gold Trust (ticker: GLD), the world’s largest gold ETF.
Silver meantime hit $32.82 per ounce Monday morning – 1.8% above Friday’s close.
“Growing investor confidence is evident in [silver] ETF positioning,” reports Standard Bank commodities strategist Marc Ground this morning, citing ETFpurchases of 341.8 tonnes in the past week.
One London broker reported Friday that the Sprott Physical Silver Trust (ticker: PSLV) bought around 311 tonnes of silver last week.
Shares in New York-listed PSLV meantime gapped lower at the start of Wednesday morning’s trade, opening 9.4% down on the previous day’s close – a result of “the instantaneous premium evaporation in PSLV,” says Gene Arensberg of GotGoldReport, which had previously warned its readers that the shares’ premium to PSLV’s net asset value could disappear “at the drop of a hat.”
“Ouch for the faithful PSLV buyers,” says Arensberg, “and shame upon the managers of PSLV for allowing the premium to get so out of whack to the upside.”
Eurozone finance ministers meantime met in Brussels on Monday, where they were expected to discuss the terms of Greek debt restructuring, with negotiations in Athens over recent days having failed to produce a deal.
“I remain quite hopeful [of reaching agreement],” Charles Dallara, managing director of the Institute of International Finance – which is negotiating on behalf of banks that hold Greek debt – said Sunday.
The IIF made an offer on Friday to accept voluntary private sector involvement that would amount to losses on Greek bonds of around 65-70%, according to press reports. Dallara described it as “the maximum offer consistent with a voluntary PSI deal”.
A sticking point is the size of the coupon on new bonds that will be swapped for existing ones. Both sides were thought to be close to agreeing an annual rate of between 4% and 4.5%, newswire Bloomberg reported.
Germany and the International Monetary Fund, however, want to see this cut to 3%, according to the New York Times, citing officials involved in the talks.
“I believe that the private sector can accept a lower coupon than the 4% average, but the question then is: will the PSI still be on a voluntary basis?” one senior Greek banker told newswire Reuters.
Any deal that is not voluntary risks triggering payments on credit default swaps – which payout in the event of default. Failure to agree debt restructuring meanwhile also risks jeopardizing Greece’s second bailout – without which it will be unable to pay €14.5 billion of maturing bonds on March 20.
Also at today’s Brussels meeting, German finance minister Wolfgang Schaeuble, along with his French opposite number Francois Baroin, will call for relaxation of banking rules, according to the Financial Times.
The pair will ask for elements of Basel III – the regulations on how much capital banks must hold, due to come into force in 2015 – to be loosened for banks that own insurance companies, such as French banks SocieteGenerale and Credit Agricole. They also propose a three-year delay for the deadline on disclosing leverage ratios – in contrast to UK regulators, who have called for disclosure ahead of schedule.
Baroin meantime has confirmed that France’s proposed financial transaction tax – one of the issues that led to British prime minister David Cameron walking out of European Union talks in December – will not apply to government bonds.
The US Federal Reserve meantime could make the historic move of announcing a specific inflation target when it gives its interest rate decision on Wednesday, Reuters reports.
Also in the US, Newt Gingrich – who last week said the United States should consider returning to the gold standard – won South Carolina’s Republican presidential primary on Saturday. One of his opponents, Mitt Romney, has subsequently bowed to calls to release his tax returns.
China has seen a “New Year’s rush” to buy gold to mark the Year of the Dragon, which begins today, the FT reports.
“Some customers just walk in and buy a bunch of 100g gold bars all at once,” it quotes one manager at Chines bank ICBC.
“People like to give them away…companies come in too to buy gold bars for presents.”
ICBC – the world’s largest bank by stock market cap – announced last week that 2.33 million Chinese citizens use its gold accumulation program, which currently holds 22 tonnes of gold.
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 20 January 2012,08:20 EST
Gold for the WeekDown in Euros, Up in Dollars as “Currency Dictates” Gold amid “Significantly Reduced” Physical Market Activity
WHOLESALE MARKETgold bullion prices in Dollars dropped to $1646 an ounce Friday lunchtime in London – down 1.4% onyesterday’s high – as China prepared for theweek-long Lunar New Year holiday.
Commodities also traded lower, while stock markets were broadly flat overall.
Prices for silver bullion dropped to $30.39 per ounce – though still 2.0% up on last week’s close.
“As we approach the holiday, the usual Asian physical activity has decreased significantly,” says one gold bullion dealer in Hong Kong.
“We expect this pattern to continue next week,” adds a dealer here in London, noting that with the Shanghai Gold Exchange closed, a large part of the global physical gold bullion market will be effectively absent.
“With physical demand providing little support, the Dollar continues to largely dictate movements in gold,” says Marc Ground, commodities strategist at Standard Bank.
Heading into the weekend, gold was up slightly on the week in Dollars Friday lunchtime, but down 1.4% in Euros.
Italy’s banks were the biggest borrowers at last month’s 3-Year longer term refinancing operation by the European Central Bank, the Financial Times reports. Italian banks borrowed around €50 billion of the €489 billion lent by the ECB, in a liquidity operation that attracted over 500 European banks.
“The market has underestimated how meaningful the scheme could be to avert a credit crunch,” reckons Morgan Stanley’s Huw van Steenis, who compiled the LTRO data.
ECB president Mario Draghi said last week that as a result of the operation, there has been a reopening of some credit markets “which had completely shut down”.
The amount of borrowing at the next LTRO, scheduled for the end of next month, is expected to be lower, Draghi said yesterday.
“This is about buying time,” reckons John Davies, London-based fixed-income strategist at German bank WestLB.
“It’s only when the market believes Italy and Spain have returned to sustainable debt levels that you can say the crisis has truly ended.”
Yields on Italian 12-month Treasury Bills have fallen from 4.5% to just over 3.5% since last month’s LTRO, while 10-Year bond yields are also down, though more slightly – dropping from 6.7% to just under 6.3% this morning.
Yields on 30-Year debt however have edged higher – rising from 6.7% to 6.9% since the day of the LTRO.
“For the time being, the ECB’s operations are working at the short end [of the yield curve],” says Werner Fey, fund manager at Frankfurt Trust Investment, which oversees around €6.5 billion worth of assets.
“But for the long end, we have a lot of uncertainties around…the government problems for the Euro sovereigns are unresolved.”
The latest draft of the fiscal treaty agreed at last month’s European Union summit contains reference to an “automatically” triggered “correction mechanism” for cases where national budget deficits deviate from target, newswire Bloomberg reported Friday.
Over in India, the government has amended the changes to gold import duties announced Tuesday. Refined gold will still be taxed at 2% of its value, but unrefined gold will only be subject to a 1% levy.
As well as raising revenue, the Indian government hopes to “discourage imports so that the Rupee steadies against the Dollar,” according to one senior government official quoted by newspaper India Today.
“Encouragingly, we are seeing some Indian [gold] buying coming through,” noted Standard Bank’s Ground Friday morning, “although this could easily evaporate if the Rupee weakens, given the current price sensitivity of the country’s buyers.”
Turkey meantime has offered “one illustration of the increasing use of gold as a financial tool,” says the latest precious metals note from French investment bank Natixis.
“It emerged this week that the decision by the Turkish central bank to allow the use of gold within banks’ reserve requirements led to an increase in local banks’ gold holdings of 63 tonnes (during October and November) to 179 tonnes,” Natixis says.
“Around the world, banks have expanded their use of the gold market as a means of securing access to US Dollar financing.”
Preliminary manufacturing data for China – the world’s second-largest source of private gold bullion demand after India – suggests the sector continued to contract in December. HSBC’s purchasing managers index rose slightly to 48.8 – with a reading of more than 50 required to imply sector expansion.
Here in the UK, China’s sovereign wealth fund has bought a 9% stake in Thames Water, the firm that supplies drinking water to London and much of southern England.
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
Monday 9 January 2012,08:40 EST
Gold “StillAboveBullish Three Year Level” as “Basket Case” Europe Means Germany Now Getting Paid to Borrow Money
U.S.DOLLAR gold bullion prices touched $1623 an ounce Monday morning London time – a 1% rally from the low hit during Asian trading – before falling back slightly, while stocks, industrial commodities and major government bond prices all ticked lower.
“[Gold bullion] remains above its 3-year bullish support that now lies at $1544,” says technical analyst Russell Browne at bullion bank Scotia Mocatta.
Prices for silver bullion rose to $29.26 per ounce – 1.9% down on last week’s high – while the Euro rallied against the Dollar in early European trading but couldn’t sustain momentum.
“The strength of the Dollar is playing a role in limiting appetite [for commodities],” says Nick Trevethan, Singapore-based senior commodity strategist at ANZ Bank.
“But Europe is still a basket case and investors are hoping to see more easing out of the European Central Bank at some point.”
Germany successfully auctioned €3.9 billion of 6-month government bills – known as Bubills – Monday morning. However, the bid-to-cover ratio was down on the previous auction last month, falling from 3.8 to 1.8.
In addition, some of the bills were sold at negative nominal interest rates – with the average yield coming in at minus 0.0122%.
Monday’s was the first auction at which bidders could bid in terms of price rather than yield.
“Through the submission of price bids with prices above 100 it is possible to submit price bids reflecting negative yields,” said a Bundesbank statement issued before the auction.
In other words, some investors were this morning prepared to pay more than €100 today in order to receive €100 in June.
Elsewhere in Berlin, German chancellor Angela Merkel is set to have talks with French president Nicolas Sarkozy today on how to implement tighter budgetary rules agreed at the December 9 summit.
“It’s important we do start to see some progress,” says Goldman Sachs chief European economist Huw Pill, adding that the Eurozone crisis will not be fixed without “German largesse”.
Banks meantime will need to take “substantial haircuts” on their holdings of Greek debt, reckons International Monetary Fund chief economist Olivier Blanchard. Representatives for the banking sector agreed to take losses of 50% as part of an agreement reached last October, but their losses “may have to be larger” Blanchard said Friday.
By contrast, the governor of Cyprus’s central bank, AthanasiosOrphanides – who is also a member of the European Central Bank’s Governing Council – has called on Eurozone leaders to abandon plans to impose private sector losses.
“It is a thoroughly inefficient way of dealing with the moral hazard issue that we are still paying for now,” he wrote in Friday’s Financial Times, arguing that reversing the decision would reduce financing costs for other Eurozone countries, even though it would raise them for Greece.
Officials from the European Union and IMF are due to visit Greece on Saturday. Before then, the ECB will hold its first interest rate meeting of 2012 on Thursday, while Italy and Spain hold bond auctions on Thursday and Friday.
China’s money supply grew by 13.6% in the year to December – more than the consensus analysts’ forecast of 12.9% – following the central bank’s decision at the end of November to cut the amount of cash banks are required to hold relative to their assets, known as the reserve requirement ratio.
A note from economists at JPMorgan this morning says it expects the PBOC to announce three cuts in the reserve requirement ratio in the first six months of this year.
This prediction follows an interview given by PBOC governor Zhou Xiaochuan to news agency Xinhua, in which he said the PBOC needs “to be prepared for a poor external environment”.
Gold volumes on the Shanghai Gold Exchange – which hit record highs last Wednesday – remained strong on Monday, traders report.
Chinese Lunar New Year falls on 23 January this year – the earliest since 2004, when it fell on January 2002. China’s banks were last week “on the bid” to buy gold head of Lunar New Year, one trader noted last week.
In addition, last month China’s authorities banned all gold exchanges with the exceptions of the Shanghai Gold Exchange and the Shanghai Futures Exchange.
Gold bullion, however, “is not cheap in local currencies in Asia,” says one Singapore-based dealer, adding that his firm only saw “light buying” on Monday, although premiums over Spot Prices were up to $1.70 from $1.30 the week before.
Over in New York, the difference between the number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex exchange – the so-called speculative net long – fell slightly the week ended last Tuesday at the equivalent of just over 422 tonnes of gold bullion, the latest data from the Commodity Futures Trading Commission show.
The decline marks the fourth-straight week of falls in the speculative net long, taking it to its lowest level since April 2009.
“The sustained deterioration in the net position is a signal that the speculative market remains wary of gold’s prospects, which might explain the failure of gold to sustain upward momentum,” reckons Marc Ground, commodities strategist at Standard Bank.
The rebalancing this week of index funds that track commodity prices could weigh on gold and silver prices, according to one dealer, who reckons around $5 billion of gold bullion will be sold.
“The rebalancing is mostly but not exclusively a matter of selling the previous year’s outperformers and buying the underperformers to bring the portfolio composure back in line,” says a note from Saxo Bank.
Swiss National Bank head Philipp Hildebrand has resigned over the controversy surrounding his wife’s purchase of US Dollars three week’s before the SNB pegged the Swiss Franc to the Euro, newswires Bloomberg and Reuters reported Monday lunchtime.
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
Monday 19December,08:45 EST
Physical Demand “Will Determine Support for Gold” while Selloff was “Driven by Euro Weakness”
WHOLESALE MARKET gold bullion prices rose to $1607 an ounce Monday lunchtime in London – 0.5% up from last Friday’s close – while European stocks and commodities were broadly flat and government bond prices eased.
Silver bullion meantime rose to $29.36 per ounce just ahead of New York’s open – 1.2% down on last week’s close.
Earlier on Monday Asian stock markets sold off following news of North Korean leader Kim Jong Il’s death. South Korea’s Kospi index fell 3.4%, while on the currency markets the South Korean Won sold off while the Dollar strengthened.
Gold bullion will fall below $1500 per ounce during the next three months, according to a poll of 20 hedge fund managers, economists and traders conducted by news agency Reuters.
“You’re looking at Euro weakness, rather than anything else, as the driving force behind the sell-off [in gold bullion last week],” reckons David Jollie, analyst at Mitsui Precious Metals, adding that many traders will be reluctant to buy gold so close to the end of the calendar year.
“Whatever your [longer-term] view, you have to ask what the chances are of making money by the end of the year…that says to a lot of people that this is not a market to get longer in.”
Over in New York, the difference between the number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex exchange – the so-called speculative net long – fell 10.6% in the week ended last Tuesday, the latest data from the Commodity Futures Trading Commission show.
“The key factors that will determine how supported the gold market is on the downside will be whether the ‘sticky’ ETP [exchange-traded product] holdings remain relatively stable and whether physical demand responds to much lower prices,” says a research note from Barclays Capital.
The volume of gold bullion held to back shares in the world’s largest gold ETF – the SPDR Gold Trust – has fallen 1.4% since the end of last month to just under 1280 tonnes. Over the same period, gold bullion prices have dropped around 8%.
European finance ministers are meeting Monday in an effort to meet a self-imposed deadline for arranging €200 billion of loans promised to the International Monetary Fund at the European Union summit earlier this month. Ministers also hope to make progress on drawing up new budget rules for national governments.
“They’ll try to get as much done as they can before Christmas,” says CarstenBrzeski, Brussels-based senior economist at ING Group.
“But it’s doubtful they’ll put markets in a Christmas mood…there is still so much uncertainty.”
Ratings agency Fitch warned on Friday that it may downgrade Belgium, Cyprus, France, Ireland, Italy, Slovenia and Spain. Fellow ratings agency Moody’s meantime announced that it has cut Belgium’s rating by two notches to Aa3.
“A ‘comprehensive solution’ to the Eurozone crisis is technically and politically beyond reach,” said a statement from Fitch.
“Of particular concern is the absence of a credible financial backstop. In Fitch’s opinion this requires more active and explicit commitment from the [European Central Bank] to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States.”
ECB president Mario Draghi however says his organization will not step up its program of buying government bonds on the open market – said to be capped at €20 billion per week.
“People have to accept that we have to, and always will, act in accordance with our mandate and within our legal foundations,” Draghi says anan interview in today’s Financial Times.
“The important thing is to restore the trust of the people – citizens as well as investors – in our continent. We won’t achieve that by destroying the credibility of the ECB.”
Fitch’s warning follows a similar move by Standard & Poor’s earlier this month, which saw S&P put every Eurozone member on CreditWatch negative.
Back in August, S&P cut its rating on US sovereign debt. Newswire Bloomberg today suggests that downgrade has proved to be “absurd”, since US Treasury bond prices have since gained more than 4%.
“It is the ability to print one’s own currency to pay government bond investors back under any circumstances that makes a government bond a government bond, i.e. a (credit) risk- free asset for hold-to-maturity investors,” points out ElgaBartsch, London-based chief European economist at Morgan Stanley in London, in a recent client note.
Here in the UK, chancellor George Osborne is expected to give his full backing to the Independent Commission on Banking and promise to pass legislation by 2015 that will separate investment and retail banking.
UK house prices meantime have fallen 2.7% over the last 12 months, according to figures published today by Rightmove.
“It looks like no nation, no market, no investor is free from this negative outlook. And gold is no exception,” says a note from Swiss gold bullion refiner MKS.
“Gold appears to be playing a difficult role at the moment,” adds the latest note from German precious metals group Heraeus.
“On one side it is the stability anchor in times of economic and financial crisis, on the other hand there are increasing signs…that gold is in wake of the equity and interest markets.”
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.
B Ben Traynor
BullionVault
Monday 14 November,08:15 EST
Dollar Rally sees Gold Fall, Merkel calls for “More Europe”, Chinese Gold Demand hits “New Levels”
U.S. DOLLAR gold bullion prices dropped to $1775 an ounce Monday morning London time – a 0.7% drop from Friday’s close.
“We see very light volume today,” says one Hong Kong gold bullion dealer.
“Gold could test $1800 soon, while the $1750 level provides good support.”
On the currency markets, the Dollar gained along with UK and German government bond prices, while European stock markets fell.
Silver bullion fell to $34.20 per ounce – a 1.5% drop from the end of last week – while other industrial commodities were mixed.
Over in Leipzig, German chancellor Angela Merkel repeated calls on Monday for a “new Europe” with greater “political union”.
Merkel – who this weekend described as “shameful” a series of murders that have been linked to a group calling itself the National Socialist Underground – said today that Europe is facing its biggest crisis since the end of World War Two.
The solution is “more Europe and not less Europe” Merkel told her CDU party’s annual conference.
“The Euro is a failed project that has costs barrels full of money,” reckons Dutch politician Geert Wilders. Wilders, whose Party for Freedom is known for its anti-Islam stance, has said he is looking at the implications of the Netherlands returning to the Guilder – the currency it had before joining the Euro.
Spain’s Socialist government meantime is set to lose Sunday’s general election, according to latest opinion polls, which predict a win for the center-right Popular Party.
Yields on Spanish 10-Year government bonds this morning breached 6% for the first time since the European Central Bank began buying Italian and Spanish debt in early August.
Over in Athens, Greece formally appointed Lucas Papademos as prime minister on Friday, while in Italy Mario Monti – former European Competition Commissioner and adviser to Goldman Sachs – was asked last night to form a new government, following the resignation of Silvio Berlusconi.
“Monti’s appointment is clearly a positive for markets,” reckons EmmanueleVizzini, chief investment officer at Milan-based asset management firm InvestitoriSgr.
Italy’s Treasury successfully sold €3 billion in 5-Year government bonds on Monday. The average yield was 6.29% – up from 5.32% for last month’s 5-Year auction.
The ECB stepped up its buying of Italian debt towards the end of last week, according to newswire Reuters. During the crisis it has intervened on the open market to buy government bonds of troubled sovereigns – including Greece, Italy and Spain.
The ECB “must stick to [its] mandate” Jens Weidmann, president of the Bundesbank and a member of the ECB Governing Council, says in an interview published in today’s Financial Times.
“[It] must not be a lender of last resort for sovereigns because this would violate Article 123 of the EU treaty” – which prohibits central banks directly funding governments.
“[Europe is having] an absurd debate in which we are telling institutions: don’t care about the law…if we now overstep [our] mandate, we call into question our own independence.”
The Euro fell nearly 1% against the Dollar on Monday morning, hitting $1.34. The Euro gold bullion price rose to €1304 per ounce – 0.2% up on Friday’s close.
“Doubts and uncertainty over the Eurozone are sure to resurface which could see renewed interest in precious metals, especially gold and silver,” says Marc Ground, commodities strategist at Standard Bank.
“However, we continue to warn that should the Eurozone debt crisis result in a severe drying up of money markets in Europe, we could see all commodities fall rapidly, even gold.”
China meantime should “operate by the same rules as everyone else,” US president Barack Obama told reporters Sunday – referring to the alleged undervaluation of the Yuan against the Dollar.
“Enough is enough.”
“[It depends] whose rules we are talking about,” responded Pang Sen, deputy director general at China’s Foreign Ministry.
“If the rules are made collectively through agreement and China is a part of it, then China will abide by them. If rules are decided by one or even several countries, China does not have the obligation to abide by that.”
Chinese gold bullion demand meantime continues to show signs of strength.
“There’s a lot of material going into China, and New Year demand hasn’t even started yet,” said a senior executive in the secure logistics industry toBullionVault today from Switzerland.
“This is new, regular and additional traffic [in gold and silver] – levels we haven’t seen before.”
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
Monday 31October,09:00 EDT
Gold Plunges after Yen Move, Comex Traders “Cautious”, “Useless” CDS “Would Mean Much Higher Sovereign Debt Exposure”
U.S.DOLLAR gold bullion prices on the spot market dropped sharply to $1708 an ounce Monday morning – a 2.2% fall from Friday’s close – while stocks and commodities also fell and the US Dollar gained following Japan’s intervention aimed at weakening the Yen.
Gold bullion prices then rallied as the morning went on, hitting $1725 per ounce by lunchtime in London.
“The huge spike in the Dollar is pressuring gold prices,” says Ong Yi Ling, analyst at Phillip Futures in Singapore.
“But so long as gold stays above $1,700, the sentiment should remain pretty bullish.”
Silver bullion fell to $34.18 per ounce – 3.3% down on Friday’s close – remaining around that level for the rest of the morning.
On the currency markets, the US Dollar gained 5% against the Yen immediately following Tokyo’s action. By Monday lunchtime, however, the Dollar had slipped back by 2.1%.
In Europe meantime, “bold decisions are needed from the G20 leaders meeting in Cannes this week to get the global economy back on track,” says Angel Gurria, secretary general of the Organisation for Economic Co-operation and Development.
“In most countries we see some very worrying political trends,” notes Laurence Parisot of French business lobby Medef.
“Inward-looking, beggar-my-neighbor policies benefit no one,” says British prime minister David Cameron, writing in the Financial Times.
“We have to push for a more balanced world economy, where countries like the UK do better at saving and investing and restoring their competitiveness.”
M4 money supply in the UK fell 1.7% in September, figures released by the bank of England on Monday show. Lending to the real economy, according to the Bank’s measure, fell by £6.4 billion, compared to an average monthly decrease of £3.9 billion over the previous six months.
Lending to individuals, by contrast, rose by £1 billion last month, with consumer credit growing £0.6 billion – to show an increased annual growth rate of 2.5%.
The Bank announced this morning that it will no longer release these data monthly, and will instead move to quarterly publication.
On the bond markets meantime, yields on Italian 10-Year Treasury bonds hit 6.15% this morning – briefly showing a spread of over four percentage points compared to German bunds.
Italy had to offer yields of over 6% when it auctioned €7.9 billion of longer-dated bonds on Friday – the highest rate it has paid as a Eurozone member.
Elsewhere in Europe, plans to avoid triggering credit default swaps in the event of a Greek default have raised questions over whether banks using CDS – which act as a form of bond insurance – to hedge their sovereign exposure are now less protected than they thought, news agency Reuters reports.
CDS pay out if there is a “credit event”, usually taken to include a default. However, it remains unclear whether a deal on Greek debt – such as the 50% haircut for private creditors agreed last week – would be viewed as voluntary, and if so whether it would then constitute a credit event.
“People talk about Greek CDS triggering being destabilizing, when it’s really the opposite,” Reuters quotes one global credit trading head at a major European bank.
“If there is a 50% haircut and it’s voluntary, then my worry is all my sovereign CDS protection in Europe is useless, and my net exposure is much higher.”
British bank Barclays cut its exposure to Eurozone sovereign debt by 31% during the third quarter of this year, according to results published Monday.
Over in New York, the net long position of bullish minus bearish gold futures and options contracts held by noncommercial – so-called ‘speculative’ – traders on the Comex exchange jumped 5.2% in the week ended 25 October.
“Given that this week’s improvement merely erases the deterioration of the previous week, the speculative market still appears to be cautious about gold’s short-term prospects,” warns Marc Ground, commodities strategist at Standard Bank.
Over the same period, the gross tonnage of gold bullion held to back shares in the SPDR Gold Trust (ticker GLD) – the world’s largest gold ETF – rose by 16 tonnes, though the GLD has seen a small outflow of less than one tonne since last Tuesday.
In China meantime, JPMorgan Chase Bank (China) has received approval to become a member of the Shanghai Gold Exchange.
Writing in the London Bullion Market Association’s ‘Alchemist’ newsletter in 2009, Tim Wilson, JPMorgan’s managing director and head of Asia marketing of commodities, asked whether an Asia initiative should be “an agenda item on every LBMA committee”.
“The number of debates and articles about transforming the LBMA into the International BMA are too numerous to recount, but discussion has rarely been translated into action,” he said.
“We as Market Makers and Members should be embracing the opportunity to cement our position as the pre-eminent gold trading platform, to expand and promote the benefits associated with the highly accredited, reliable and international LBMA Good Delivery List.”
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
Monday 24October,08:00 EDT
Gold Climbs, “We’re Not There Yet” say Eurozone Leaders, Final Package “Unlikely to be Bold”
THE SPOT MARKET gold price climbed to $1657 an ounce Monday morning London time – a 0.9% gain on last week’s close – as markets digested the news from the first of this week’s two European Union summits.
European stock markets failed to hold onto early gains – with Germany’s DAX down 0.5% by lunchtime – while commodities edged up and US Treasury bond prices rose.
The Silver Price bounced between $31.77 and $31.27 per ounce.
“The main level to watch now [for the gold price] is the $1,627-$1,595 where the market is currently finding some support,” says Reuters technical analyst Phil Smith.
“Gold looks set to benefit from the renewed concerns about inflation and currency debasement that any cure for Europe’s ills will inevitably fuel,” says a research note from Barclays Capital.
Italy’s prime minister Silvio Berlusconi scheduled an emergency cabinet meeting for Monday evening, following the weekend’s European Union summit at which he was reportedly told by fellow Eurozone leaders to draft legislation on fiscal reforms ahead of a second summit this Wednesday.
“Italy has great economic strength,” German chancellor Angela Merkel said on Sunday.
“But Italy does also have a very high level of debt and that has to be reduced in a credible way in the years ahead.”
Merkel appeared to smirk when asked if she was reassured by her meeting with Berlusconi.
Yields on 10-Year Italian government bonds spiked to 5.97% Monday morning – after breaching 6% last week for the first time since the European Central Bank began buying Italian debt in August.
“Work is going well on the banks,” French president Nicolas Sarkozy said Sunday.
“[As well as] on the [European Financial Stability Facility] fund and the possibilities of using the fund…on the question of Greece, things are moving along. We’re not there yet.”
Sarkozy dropped his proposal that the EFSF be funded by the ECB, a move opposed by Germany.
“Central banks should not be called upon to finance states,” said German finance minister Wolfgang Schaeuble.
It remains undecided how the EFSF will be funded and for what precisely it will be used.
Europe’s banks meantime will need to find €108 billion of new capital within the next nine months, according to the Financial Times. The shortfall was reportedly identified by stress tests carried out by the European Banking Authority, which required a Tier 1 capital ratio of 9% to pass.
Banks have agreed to a voluntary ‘haircut’ of 40% on their Greek bond holdings – while politicians want it to be at least 50% – news agency Reuters reports. Banks agreed a 21% haircut back in July, but this is now seen as insufficient.
The EU said Friday it will pay its €5.8 billion share of Greece’s next bailout installment worth around €8 billion in total.
“Ahead of the Wednesday summit, there remain many open questions,” reckons JuergenMichels, lead Euro area economist at Citigroup in London.
“It seems that progress has been made over the weekend to get to a ‘comprehensive package’, but it is unlikely to be a bold one.”
Over in India – which today celebrates the festival of Dhanteras, the start of the five-day festival of Diwali – the rise in the gold price since last year means gold sales “are lower in volume but higher by value”, according to Prithviraj Kothari, director of the Bombay Bullion Association, adding that sales by volume have reduced by up to 30% in some parts of Mumbai.
“With high inflation there is hardly any money left with people to invest in gold. I fear that this year jewelry sales may be 20-30% lower than last year.”
The United States is expected to experience “at least one credit downgrade in late November or early December,” according to analysts at Bank of America Merrill Lynch. Their report cites a bipartisan “super committee” formed by Congress to address the deficit – and which is due to agree $1.2 trillion worth of deficit reduction measures by November 23.
Ratings agency Standard & Poor’s downgraded the US one notch to AA+ in August. US government debt is still rated triple-A by Fitch and Moody’s, the other two major ratings agencies.
In New York meantime the ‘speculative’ net long position of bullish minus bearishgold futures and options contracts held by noncommercial Comex traders fell 4.8% in the week ended Tuesday 18 October – hitting its lowest level since May 2009 – figures published on Friday show.
“The past week’s deterioration confirms that the speculative market is indeed cautious about gold’s short-term prospects,” says Marc Ground, commodities strategist at Standard Bank.
“However, positioning remains uncommitted either way, so participants don’t seem particularly worried about the gold price falling off a cliff.”
“Despite the two-year low in net spec length,” adds a note from precious metals consultancy VM Group, “the ratio between gross longs and gross shorts remains above this year’s low…and well above lows recorded in 2009 and 2008.”
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 wish to act on it.
By Ben Traynor
BullionVault
Monday 17October,08:00 EDT
Gold and Stock Rallies Fade, “We’ll Solve the Crisis” say Euro Leaders, “We’ll Tear Down Capitalism” say Protesters
THE SPOT MARKETDollar price to Buy Gold rose to $1694 an ounce Monday morning – the highest level since September 23 – before dropping back to roughly where it ended last week.
“[A gold price of] $1,650 should remain as good support with sovereign and physical bids coming in at that level,” reckons one London bullion dealer.
The price to buy gold in Euros, by contrast, held onto most if its gains after hitting €39,335 per kilo (€1223 per ounce), reflecting a near-1% fall in the Euro against the Dollar this morning.
Silver prices hit a high of $32.66 per ounce – 1.2% down on last week’s high – while commodities were broadly flat and US Treasury bonds gained.
European stock markets started the day strongly – with the FTSE at one point up 1.4% and Germany’s DAX up 1.0% – though like gold in Dollars they too retreated before lunchtime.
“Too much uncertainty remains in the market,” reckons UBS precious metals analyst Edel Tully in London.
“[There are] questions over issues such as guarantees of European sovereign debt, a Greek default and debt sustainability…while there is no rush to buy goldhere, it is equally clear that investors who are long the yellow metal are not willing to let go of holdings either.”
G20 finance ministers gave Eurozone leaders until the end of this week to reveal their strategy for tackling the Eurozone debt crisis, according to press reports on Monday.
“The risk of a recession would be increased dramatically were the Europeans to fail to accomplish goals that they’ve set for themselves,” said Canada’s finance minister Jim Flaherty on Saturday, the day the G20 meeting ended in Paris.
“We’re aware of our responsibility,” said German finance minister Wolfgang Schaeuble.
“We’ll solve the problems in the Eurozone.”
A spokesman for German chancellor Angela Merkel, however, said the search for a solution “surely extends well into next year”.
Schaeuble today indicated that EU leaders may agree to raising banks’ Tier 1 capital ratios to 9% – up from the 4% recommended under the Basel II regime, the set of accords published by the Basel Committee on Banking Supervision in 2004.
Over in New York, the net long position of bullish minus bearish gold futures and options contracts held by noncommercial – so-called ‘speculative’ – Comex traders rose for the second week running last week, gaining 3.5% in the week to 11 October.
“Much like in the previous week, the increase in the net position was mostly attributable to the decrease in speculative shorts,” says Marc Ground, commodities strategist at Standard Bank.
“Given the modest nature of the past two weeks’ improvement in the net position, we still feel that the speculative market remains cautious about gold’s short-term prospects. However, the decline in speculative shorts is encouraging.”
The Occupy Wall Street movement – which began last month when demonstrators pitched a tent outside the New York Stock Exchange to protest against the banking sector – has spread to other global financial centers.
Protesters began camping outside the London Stock Exchange on Saturday, hanging up a sign that reads ‘Jail the Bankers’.
“I want a government that will not just pander to the banks…I want to see stricter regulation of the finance system,” one told news agency Bloomberg.
One placard outside Australia’s central bank meantime reads: “When I do it, it’s counterfeiting. When the Reserve Bank does it, it’s called Quantitative Easing.”
“[Occupy] Wall Street has a campaign to start asking questions about capitalism but this is not enough,” said a protester in Hong Kong.
“I want to tear down capitalism.”
Elsewhere in Hong Kong, the Chinese Gold & Silver Exchange Society it launched its Yuan-denominated Kilobar Gold contract earlier today.
The world’s first Yuan-denominated contract to buy gold outside of mainland China “can truly help promote the internationalization of the Renminbi [Yuan],” says Haywood Cheung, president of the 100-year-old CGSE.
“There’s triple demand for this Yuan product…investors can enjoy the bull market in gold, the Yuan’s appreciation and hedge gold denominated in other currencies against the Yuan.”
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.
