By Ben Traynor
BullionVault
Friday 9September,08:20 EDT
Gold Continues “White-Knuckle Ride” as “Uninspiring” Policymakers “Limit Upside” for Stock Markets
U.S.DOLLAR gold prices plunged sharply Friday morning in London, hitting a low of $1826 per ounce – 4.9% down on Tuesday’s all-time high – while stocks and commodities also fell and European government bonds gained.
Going into the weekend, the gold price at Friday lunchtime looked headed for 3.3% weekly drop after speeches from US and European policymakers did little to calm market nerves.
“Gold prices enjoyed a white-knuckle ride this week,” says a note from French investment bank Natixis.
“There are very good reasons why people long on gold may be taking profits,” JesperDannesboe, analyst at SocieteGenerale, told Bloomberg this morning when asked about Friday morning’s sudden drop.
Dannesboe cited a stronger Dollar, as well as the technical explanation that gold prices are forming a so-called ‘double top’ – an M-shaped-pattern than some technical analysts view as bearish.
“The swings have been quite dramatic in the last two weeks between $1704 and $1920,” adds a report from bullion bank Scotia Mocatta.
“We do not [however] expect sizeable liquidation unless $1704 breaks.”
Silver prices meantime fell to $41.37 per ounce – 4.3% down for the week so far.
European stock markets fell Friday morning. In London the FTSE was down 0.6% by lunchtime, while the German DAX was off over 1% – and down 7.6% since the start of the month.
The Euro Stoxx 50 index of leading Eurozone shares meantime was down 1.3% – also making a 7.6% loss for the month so far.
“The economic situation is getting worse,” says Markus Steinbeis, head of equity portfolio management at the Pioneer Investments in Unterfoehring, Germany, which manages around $221 billion.
“It depends more than ever on what policy makers will do. As long as economic indicators remain as they are right now and emerging markets are tightening their monetary policies, the upside should be limited.”
On the US markets meantime, the correlation among the largest 250 stocks in the S&P 500 has reached 81%, research from JPMorgan shows – suggesting stocks prices are moving together in response to wider market conditions rather than individual company fundamentals. This is the highest level since the stock market crash of 1987, the Financial Times reports.
President Obama announced his “jobs plan” on Thursday, exhorting Congress to pass $447 billion in proposed spending and tax cuts. Press reports ahead of the announcement predicted the package would be worth $300 billion.
“The plan reflects the government’s deep concern about the economy,” adds DuanShihua at Haitong Futures in China.
“[It raises]the real possibility of another round of quantitative easing, which is supportive of gold.”
“Markets have been uninspired [by the plan],” adds Marc Ground, commodities strategist at Standard Bank.
The US Federal Reserve meantime will “do all that it can to help restore high rates of growth and employment in a context of price stability,” Fed chairman Ben Bernanke said in a speech on Thursday.
“The Federal Reserve has a range of tools that could be used to provide additional monetary stimulus…[we] will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September.”
The Federal Open Market Committee is next due to meet on 21 and 22 September, with the meeting extended to two days rather than the usual one.
Here in Europe, the European Central Bank has “delivered price stability impeccably,” outgoing ECB president Jean-Claude Trichet told reporters on Thursday.
Trichet was responding to the suggestion that some German economists are privately calling for a return to the Deutsche Mark, as well as comments from German opposition leader Sigmar Gabriel that the ECB’s purchases of Eurozone government debt was putting “the stability of the currency in danger”.
“It is not by chance that we have delivered price stability,” said Trichet. “We were asked [by Eurozone governments] to decrease rates in 2004…we said ‘No’.”
Over in China – the world’s second largest gold bullion consumer – industrial production growth slowed to 13.5% year-on-year in August – down from 14.0% a month earlier – according to official data published Friday. Chinese consumer price inflation meantime fell to 6.2% last month – down from 6.5% in July.
Former Libyan leader Muamar Gaddafi sold 29 tonnes of gold bullion – 20% of the country’s reserves – during his final weeks in power, according to Libya’s new central bank governor.
“The gold was liquidated in order to pay salaries and to have liquidity, in Tripoli in particular,” said QassemAzzoz on Thursday.
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
Tuesday 30 August,08:30 EDT
Gold Leaps 2.2%, Market “Questions Upside for Gold”, Finnish Demand “Puts Entire Greek Rescue at Stake”
THE DOLLAR gold bullion price leapt 2.2% in less than an hour Tuesday lunchtime London time, hitting $1832 per ounce – still 4.2% off last week’s all-time high – whilecommodities fell, US Treasury bonds rose and stocks were mixed as Greek debt worries affected the Eurozone.
“Conventional wisdom is that bullish sentiment on equities would mean bearish sentiment on gold,” reckons one gold bullion dealer here in London.
“But the outlook remains sufficiently uncertain that gold continues to find reasonable support.”
“There’s a little bit of bargain hunting,” adds Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
“Towards September, jewelers pick up…festivals give gold a little bit of support for the time being. The premiums are increasing due to some demand. There’s not much sales of scrap around.”
Silver prices rose to $41.48 per ounce – just above Friday’s close.
“We see last week’s low of $38.78 as an important technical pivot,” say technical analysts at bullion bank Scotia Mocatta.
“Topside resistance is seen at $41.71. We are cautious owning silver as we do not believe the market has recovered from the April/May large liquidation.”
Stock markets rose on Tuesday in London – which reopened after yesterday’s bank holiday – with the FTSE 100 up over 2% by lunchtime, following gains for US and Asian stock markets over the previous 24 hours.
In continental Europe, by contrast, major stock markets sold off, with Germany’s DAX down nearly 1%, while in Paris the CAC fell 0.4%
Some European banks are not taking sufficient writedowns on the Greek debt they hold, according to the International Accounting Standards Board, which oversees markets on behalf of the European Union.
“It is hard to imagine that there are buyers willing to buy those bonds at the prices indicated by the valuation models being used,” warned IASB Hans Hoogervorst in a letter dated August 4 and published Tuesday.
The letter’s publication follows calls for an “urgent recapitalization” of Europe’s banking sector, made on Saturday by International Monetary Fund managing director Christine Lagarde.
“Monetary policy also should remain highly accommodative, as the risk of recession outweighs the risk of inflation…policymakers should stand ready, as needed, to dive back into unconventional waters.”
Brussels dismissed the idea on Monday.
“We’ve always preferred the private sector to come up with solutions by themselves,” said EU spokesman AmadeuAltafaj-Tardio.
“European banks are much better capitalized than they were even a year ago…[but] national public authorities have also drawn up contingency mechanisms in case.”
Elsewhere in Europe, Finland continues to insist on receiving some form of collateral in return for contributing to a Greek bailout.
Greece agreed earlier this month to post cash as collateral against the Finnish portion of the rescue deal – a proposal with which other Eurozone members are unhappy.
“In normal circumstances, demanding collateral is quite usual,” Germany’s deputy foreign minister Werner Hoyer says in an interview published Tuesday by Finnish newspaper HelsinginSanomat.
“But now Greece has put the ball back in Finland’s court by saying that Finland will get the cash collateral from the other Euro countries…that will naturally not do.”
“I’m not happy with [the Finland-Greece deal]“, said Jean Claude Juncker, chairman of the Eurozone finance ministers, on Monday.
Finland’s government would, however, “likely collapse” if it backed down on its collateral demand, according to TimoTyrvaeinen, chief economist at Finnish bank Aktia.
“What’s at stake is…the entire second rescue package for Greece by the Euro area,” reckons Frank Engels, Frankfurt-based co-head of European economy at Barclays Capital.
On the gold futures markets meantime the number of noncommercial – so-called speculative – long positions held by traders on New York’s Comex fell 3.4% in the week ended 23 August.
“The fall off in gold speculative longs points to a market that whilst not overly bearish (no strong surge in speculative shorts) is questioning further upside for gold,” says Marc Ground, commodities strategist at Standard Bank.
“Speculative shorts remain above last year’s average. Further price dips in the near term can be expected, should the market’s perception of risk start to change.”
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 Adrian Ash
BullionVault
Fri, 26 Aug. 2011
“With Or Without QE3″ Gold Now “Supported by Dire Outlook” Say Analysts
THE PRICE OF PHYSICAL GOLD rose in Asian and London trade Friday morning, regaining half of this week’s 11% drop from new record highs, before slipping back to $1768 per ounce.
Global stock markets fell, as did energy and most commodity prices, as the Dollar rose ahead of Federal Reserve chairman Ben Bernanke’s much-anticipated speech at the annual Jackson Hole central-banking conference in Wyoming.
Bernanke used this speech last year to signal the start of QE2, buying $600 billion of US Treasury bonds in a bid to reflate risk assets and the economy.
Treasuries rose early Friday, pushing the yield on 10-year debt down to 2.19%.
“If the Fed moves to launch a further round of quantitative easing, gold will see little resistance in its summit of the highly psychologically significant threshold of $2000,” reckons the latest Metals Monthly from the VM Group in London.
Reviewing recent US data, “There have been few, if any other, times when the economic backdrop was more favourable for gold,” says the report, produced for ABN Amro bank.
“With the impact of recent margin increases now absorbed,” says one London gold and silver dealer in a note, “there is a sense that the slate has been wiped clean in readiness for Chairman Bernanke’s speech this afternoon.”
“Weak speculative longs have now been washed out,” agrees Ole Hansen, senior manager at Saxo Bank, “and the [gold] market is settling down for Bernanke.
“QE3 or no QE3, it does not alter the near-term dire prospects for economic activity and worries about the health of the banking sector and government debt.”
Gold prices “are likely to regain some strength over the coming weeks while the macroeconomic environment remains supportive,” says Swiss refinery MKS’s finance division.
Early Friday in Asia – source of 65% of world gold demand each year – Hanoi gold prices leapt ahead of international prices yet again, widening the premium in Vietnam’s tightly-regulated gold market to $59 per ounce.
Tokyo gold futures also rose, regaining 1.6% even as the Yen rose back towards last week’s three-decade highs to the Dollar.
A chart in the VM Group’s new Metals Monthly report shows trading on China’s Shanghai Gold Exchange leaping 7-fold between July and August to nearly 100,000 lots per day.
“I’ve said for a long time that gold would reach $2,000 by the end of this year and I don’t see any reason why it should go down,” said gold mining chairman Peter Hambro of Petropavlovsk to Reuters on Thursday.
“It could be $2,500 by the end of next year.”
French bank BNP Paribas and Australasia’s ANZ today both raised their gold price forecasts for 2012 to $2080 and $2200 respectively.
Swiss bank UBS this week hiked its 3-month forecast to $2100 per ounce.
Adrian Ash
BullionVault
Gold price chart, no delay | Buy gold online at live prices
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(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 Adrian Ash
BullionVault
Mon, 22 Aug. 2011
Gold Makes Another Clean Sweep, Touches $1890 as Treasury Buyers Look to QE3
THE PRICE OF physical gold rose Monday morning for the thirteenth time in sixteen August trading sessions so far, recording new all-time highs against all major currencies bar the Japanese Yen as London dealing began.
The price of physical gold briefly broke above $1890 per ounce as Asian stock markets closed the day lower again, but European equities then bounced, with London’s FTSE-100 index jumping 2% to regain 100 of the 775 points lost so far in August.
Little changed over the previous nine months, the gold price in Australian Dollars has now risen 31% since the start of July.
The price of gold in Swiss Francs – strongest of the world’s major currencies during the latest financial crisis and deemed a “safe haven” – has risen by 20% in the last three weeks alone.
“It is hard to imagine a much more bullish environment for gold,” says one London dealer in a note.
“ETF buying and other risk aversion have helped push the price to new highs just shy of the $1,900 mark which seems likely to be broken this week.”
“If it was just the retail end of the [investor] spectrum that was buying,” says the latest Metal Matters from bullion bank Scotia Mocatta, “then that might signal that the end of the rally was in sight
“But the fact that the buying has been broad based suggests sentiment remains strong. Indeed given that no solutions to the debt crises have been found, it seems as though the big picture outlook for gold remains robust…for a considerable time.”
“It is difficult to argue that gold is in a bubble,” says Marc Ostwald, financial markets strategist at Monument Securities, quoted by EuroMoney magazine, “even if the one-way charge into gold has bubble-like qualities.
“It would require a sharp rise in money rates and bond yields to attract money away from gold.”
Major-government bond yields ticked higher early Monday as prices slipped back, nudging 10-year US Treasury returns up to 2.12%.
Ten-year Treasury yields briefly fell below this level in Dec. 2008. US consumer-price inflation was pegged in July at 3.6% annually.
“The market is pricing in another round of large-scale asset purchases [from the Federal Reserve], looking for confirmation possibly as early as [this week's] Jackson Hole symposium,” reckons Anshul Pradhan, fixed-income analyst at Barclays in New York.
Fed chairman Ben Bernanke used his Jackson Hole speech in 2010 to announce the US central bank’s second-round of quantitative easing. But with 10-year Treasuries already ‘pricing in’ up to $600 billion of QE3 today, “If the chairman does disappoint, then there should be a reversal in the outperformance of 10-year notes,” says Pradham.
Record-low Treasury bond yields “are consistent with near zero growth and inflation,” says Citigroup strategist Brett Rose.
“All commodity prices decline during a recession, except gold,” says Standard Bank’s Walter de Wet in a new report released Monday morning. “We believe this is likely to be the case once again, should we experience a recession.
“Gold has declined substantially in only two recessions – 1980 and 1981. These recessions were led by extremely tight monetary policy and high real interest rates.”
Europe’s benchmark oil price, Brent crude lost 1% to $107 per barrel on Monday morning, as Libyan rebels entered the capital, Tripoli, and declared the 42-year Gaddafi dictatorship to be finished.
Silver prices briefly touched $44 per ounce – up by 10% from the start of the month, but still 12% off April’s three-decade highs.
Meantime in Indian – the world’s largest price-consumer market for gold bullion – “The rains have been good so far, so we can expect good demand for [October's] festival season this year,” said Prithviraj Kothari, president of the Bombay Bullion Association, to a conference on Saturday.
Indian households’ sales of “scrap gold” have fallen even as gold prices reached new record highs, noted another speaker.
“The equity market is volatile and property prices are too high, driving people toward gold as an investment,” says Kothari.
Adrian Ash
BullionVault
Gold price chart, no delay | Buy gold online at live prices
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(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
Wednesday 17 August,08:30 EDT
Gold Hits $1795, “Useless” Eurozone Leaders would Cut Funding to Govts Disobeying Brussels
THE DOLLAR gold price rose to a high of $1795 an ounce Wednesday morning in London – 1.1% off last Wednesday’s record – before selling off towards lunchtime.
Broad commodity prices rose, while stock markets dropped following Tuesday’s Franco-German summit in Paris.
“Downside support [for the gold price] is found at $1742,” say technical analysts at bullion bank Scotia Mocatta.
“Our big picture view is that while $1687 holds, the risk is for a measured move objective of $1932.”
Silver prices broke the $40 per ounce mark around lunchtime, hitting $40.38 – a 3.4% gain for the week so far.
“Gold is still the most appealing asset in the short run, while uncertainty over the Eurozone’s future will not evaporate overnight,” says VTB Capital analyst AndreyKryuchenkov.
Eurozone governments will not start issuing so-called Eurobonds – join-government debt instruments collectively back by all members of the single currency. Nor will the European Financial Stability Facility – the Eurozone’s €440 billion bailout fund – be enlarged.
Those were the conclusions of Tuesday’s meeting between French president Nicolas Sarkozy and German Chancellor Angela Merkel.
“Eurobonds can be imagined one day,” Sarkozy told reporters after the meeting.
“But at the end of the European integration process, not at the beginning.”
Merkel described Eurobonds as “last resort” that are not required at this point.
The two leaders instead advocated closer integration of Eurozone members’ fiscal policies – with sanctions for those that breached rules on deficits and debt limits – and proposed an ‘economic government’ for the single currency area headed by current European Union president Herman van Rompuy.
In a joint letter to Van Rompuy Wednesday morning, Merkel and Sarkozy suggested a freeze on EU structural funding – intended to grant financial assistance and resolve economic and social problems – for members who fail to comply with Brussels recommendations on deficit reduction.
Currently 14 of the 17 Eurozone countries – including France and Germany – are subject to the European Commission’s “excessive deficit procedure”. EDP is triggered when a deficit exceeds 3% of gross domestic product, or when total government debt breaches 60% of GDP.
Merkel and Sarkozy also proposed a levy on financial transactions – known as a Tobin tax.
“Again, European leaders fail to provide a proper answer to the right question,” says a note from French investment bank Natixis.
“A European Tobin-like tax is not the solution.”
“The market felt [the meeting] to be useless [which] brought gold higher,” said Swiss gold bullion refiner MKS on Tuesday.
Since the first Greek bailout in May 2010, the Euro gold price – which hit a high of €1248 per ounce this morning – is up more than 30%.
On the currency markets, the Swiss Franc shot up 2.6% against the Euro on Wednesday morning, prompting the Swiss National Bank to repeat its assertion that the Franc is “massively overvalued”.
The SNB announced that it is expanding liquidity supply for the second time in a week. The central bank aims to increase banks’ instant access deposits with the SNB by 67% to SFr200 billion.
“The SNB reiterates that it will, if necessary, take further measures against the strength of the Swiss Franc,” said an official press release.
The currency’s rise this morning saw the Swiss Franc gold price fall 2.3% to SFr1400 per ounce.
The Bank of England meantime refrained from expanding its asset purchase program – known as quantitative easing – at its nine-member Monetary Policy Committee meeting earlier this month, with only one of the nine members voting for expansion, minutes published Wednesday reveal.
Other members, however, “considered whether there was a case for increasing the degree of monetary stimulus by undertaking a further programme of asset purchases. Those members concluded that the case was not yet strong enough… further asset purchases might nonetheless become warranted were some of the downside risks to materialise.”
The MPC voted unanimously to keep rates on hold at 0.5% – where they have remained since March 2009. At every other MPC meeting this year, at least two members have voted for a rate hike.
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
Wednesday 10 August, 09:00 EDT
Gold and Stock Markets Up, Fed “Will Push QE3if Necessary”, BoE Predicts “Sluggish” Growth
THE DOLLAR gold price rallied to $1767 an ounce Wednesday morning in London – 0.6% off the previous day’s all-time high – as stocks and commodities also rose following the US Federal Reserve’s interest rate announcement on Tuesday.
Silver prices climbed to $38.67 an ounce – 0.9% up for the week so far.
“We believe the gold price will lose some of its recent strong upside momentum in the course of the coming days,” says Axel Rudolph, technical analyst at Commerzbank.
“Nonetheless [we] maintain our medium term bullish outlook.”
The gold price “should remain supported,” adds David Thurtell, analyst at Citigroup.
“I think there are enough concerns about sovereign debts and weakening growth, that people will buy dips.”
The US Federal Reserve confirmed Tuesday that it will keep its benchmark interest rate at historic lows between 0 and 0.25%, to “promote the ongoing economic recovery”.
“The Committee currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013,” said a statement from the Federal Open Market Committee.
The FOMC said it also discussed its “range of policy tools” – and is “prepared to employ these tools as appropriate”.
“Bernanke will push through QE3 if the economic conditions warrant it,” explains Steve Lear, deputy chief investment officer at JP Morgan Asset Management, referring to a possible third round of quantitative easing.
“We now see a greater-than-even chance that the FOMC will resume quantitative easing later this year or in early 2012,” agrees Jan Hatzius, chief economist at Goldman Sachs.
Here in Europe, there remains a “massive overvaluation” of the Swiss Franc, according to a statement issued Wednesday by the country’s central bank.
“The Swiss National Bank…is taking additional measures against the strength of the Swiss Franc,” the SNB said.
“It will again significantly increase the supply of liquidity to the Swiss Franc money market.”
The SNB says its aim is to boost by 50% the sight deposits – meaning deposits available for immediate withdrawal – that commercial banks hold with the central bank.
“With liquidity already ample in Switzerland [however], the Swiss authorities could be doing little morning than pushing on a string,” reckons Jane Foley, senior currency strategist at Rabobank International.
The SNB last week cut its benchmark interest rate to “as close to zero as possible”.
The Swiss Franc has risen 29% against the US Dollar since the start of the year. The Swiss Franc gold price was down around 3% for the year on Wednesday morning, while the Dollar gold price was up around 25%.
Here in the UK, the Bank of England cut its growth forecast for 2012 to 2% – down from 2.5% – adding it expects growth “to remain sluggish in the near term, reflecting the continuing squeeze on households’ real incomes”.
“The most likely outcome is for inflation to be a little below target in the medium term,” it said in Wednesday’s quarterly Inflation Report, although it added there is a “good chance” consumer price inflation will hit 5% by the end of this year.
The Bank – which has held its benchmark interest rate at 0.5% since March 2009 – has an official CPI inflation target of 2%.
Meantime in India – the world’s largest gold bullion market – demand for gold was “slightly slow” on Wednesday, according to one jeweler in the southern city of Chennai.
Princeson Jose, managing director of Prince Jewellery, says people are waiting for the gold price “to stabilize”.
“The spike in prices has made customers a little cagey, adds Bhadresh Shah, a bullion analyst in Mumbai.
The long term sentiment among traders remains bullish, however, Wednesday’s Wall Street Journal reports.
In Dubai, by contrast, gold souqs report they are running out of gold bars and coins. Those dealers who still have gold have increased the premium they charge above the spot gold price by up to 650%, according to press reports.
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 8 August, 07:30 EDT
Gold Hits $1714, ECB is “Last Line” of Eurozone Defense, US Debt Plan “Falls Short” says S&P
U.S. DOLLAR gold prices soared to a record $1714 an ounce in Monday’s Asian trade – up 3% from last week’s close – following Friday’s US sovereign debt downgrade and Sunday’s announcement by the European Central Bank that suggested a new phase in the Eurozone crisis.
Stocks and commodities sold off heavily Monday morning, while US Treasury bonds rose after the ECB said it will buy Eurozone government bonds.
Silver prices peaked at $40.31 per ounce in Asian trade – 5.2% up on last week’s close – before easing back.
Euro gold prices hit another new record mid-morning in London – coming within 5 cents of €1200 per ounce – while on the currency markets the Euro lost 1% against the Dollar.
“With the Dollar weakening too [against other currencies], gold has burst through the $1,700 level and looks almost certain to be heading higher,” says one gold bullion dealer here in London.
“What people are realizing is that Dollar and Euro currencies have real problems and I think that’s manifesting in the gold price,” adds UBS Wealth Management analyst Dominic Schnider.
The ECB “will actively implement its Securities Markets Programme” to buy government bonds on the open market, according to a statement released Sunday.
“The ECB is once again intervening as the last line of defense,” says Jacques Cailloux, chief European economist at Royal Bank of Scotland in London.
Traders report that the ECB was active in the bond markets as soon as they opened on Monday.
The yield on Italian and Spanish government bonds fell sharply as their prices rose – a sign that the ECB’s buying program is actively targeting those countries’ bonds.
Italian 10-Year government bonds saw their yield fall to 5.3% – compared to a high of nearly 6.4% last week.
The yield on 10-Year Spanish bonds also dropped to around 5.3% – having hit nearly 6.5% last week.
The ECB’s move “does encourage any maneuverable short positions to get out” says Mark Schofield, head of interest rate strategy at Citi.
“But the market has been about a reduction in long positions not new short positions” he added, implying the problem is longer-term investors selling out, rather than shorter-term speculation.
The ECB intervened in the bond markets – to the tune of €16.5 billion – in May last year in the weeks following the first Greek bailout. At the same time it sought to offset the potential inflationary effect of its bond purchases by raising the interest rate offered to banks to encourage deposits – a process known as sterilization.
“Given the far larger size of the Italian and Spanish debt markets… the ECB might need [to buy] €200 billion or more of [Italy's] debt stock, and at least €50 billion of Spanish debt,” reckons Chris Scicluna, deputy head of economic research at Daiwa Capital Markets.
“I don’t think that…€50 billion a week can be sterilized,” warns ING Belgium economist Carsten Brzeski.
Sunday’s ECB statement also called for “the prompt implementation of all the decisions taken at the Euro area summit”.
The European Financial Stability Facility – the Eurozone’s €440 billion bailout mechanism – was granted bond-buying powers following last month’s summit. However, it will not formally receive these powers until the relevant legislation is passed by national governments – not expected until mid-September at the earliest.
Over in Washington, ratings agency Standard & Poor’s carried out its threat to downgrade US sovereign debt on Friday – from AAA to AA+.
“The fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics,” S&P said in a statement.
Moody’s and Fitch, the other two major ratings agencies, have maintained their triple-A rating for US debt – although Moody’s maintains a negative outlook.
On New York’s Comex exchange, the net long position of bullish minus bearish contracts held by noncommercial– so-called speculative – gold futures and options traders jumped 7.3% in the week ended 2 August, according to figures from the Commodities Futures Trading Commission.
The rise was almost entirely attributable to a rise in speculative long positions, with speculative short positions barely changed.
Gold prices “are overbought at the moment” reckons Natalie Robertson, commodities strategist at ANZ Bank.
“If you look at technicals, [gold] could be vulnerable to some profit taking.”
“We foresee physical buying if gold drops to sub-$1,650 levels,” adds Standard Bank commodities strategist Walter de Wet, adding that supplies of scrap gold have “moderated substantially” in the last fortnight.
“Seasonally, Q4 is the strongest quarter for gold jewelry demand, and we would expect buying interest to ramp up in August.”
“We had very good business on Saturday and Sunday,” confirms T.K Chandran, managing director of DKTM Jewellery in southern India.
“Everybody who comes in wants to know whether gold prices will go up more.”
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
Thursday 4 August, 08:30 EDT
Gold Rallies, Japan Joins the “Currency War”, Treasury Advisors say Dollar “Slipping” as Reserve Currency
THE DOLLAR gold price climbed to $1671 an ounce Thursday lunchtime in London – just a Dollar or so below Wednesday’s record high – while stocks and commodities fell after Japan became the second country in as many days to try to halt the rise of its currency.
Silver prices traded in a tight range around $41.70 per ounce – up 4.6% for the week so far.
The Euro gold price meantime set another record at the London Fix, at €1170.61 per ounce.
“It seems that investors hold gold in strong favor amid concerns of further debasement of fiat currencies,” says a note from Swiss precious metals group MKS.
“People are looking for a safe haven,” agrees Barclays Capital analyst Xin Yi Chen.
“Currencies like the [Swiss] Franc and Yen have…declined recently, so investors have very few places left to put their money… we expect investor flows to remain strong and gold’s uptrend to continue.”
Japan sold ¥1 trillion on Thursday in an effort to prevent the Yen rising further on the world’s currency markets.
The Bank of Japan meantime increased by 20% the value of monetary stimulus program, boosting it to ¥50 trillion.
“I will continue to watch the market closely and will take appropriate action,” said Japan’s finance minister Yoshihiko Noda.
The US Dollar rose 4.1% against above ¥80 per Dollar following the announcement, while the Yen gold price rose 3.9%.
Japan intervened in the currency markets at the start of April following the earthquake and tsunami. The Dollar rose to a high of ¥85 Yen, but then began a slide to less than ¥77 yesterday.
The April move was implemented in concert with other G7 nations, whereas Thursday’s move saw Japan acting alone.
“The Yen’s level now is still a very tough level for exporters,” says Junko Nishioka, chief economist at RBS Securities Japan.
“If US jobs data and other upcoming US economic events fan worries about the US economy, the Yen may appreciate again.”
The latest US nonfarm payrolls data are due this Friday.
“[Wednesday's] monetary easing by Switzerland provided the push because if Japan didn’t respond this would push the Yen still higher,” reckons Nagayuki Yamagishi, strategist at Mitsubishi UFJ Morgan Stanley Securities.
The Swiss National Bank cut its interest rate to “as close to zero as possible” on Wednesday.
The Dollar jumped 1.7% against the Swiss Franc following the announcement, but then reversed most of the gains within a few hours. The Dollar is down 18% against the Swiss Franc since the start of 2011.
As of Thursday lunchtime, the Swiss Franc gold price was down 1.96% over the same period.
“It seems a fresh chapter is opening up in the currency wars,” says Chris Turner, chief currency strategist at ING.
“Both Japanese and Swiss officials [are] trying to draw lines in the sand regarding the strength in their currencies they are prepared to tolerate.”
Turner says both countries face “a long and drawn-out campaign”.
“For Japan the (US) Fed is more likely to cut than hike interest rates and thus the Dollar remains pressured, and for the Swiss there seems no resolution to the debt crisis (in the Eurozone).”
The US Dollar’s status as the world’s reserve currency “appears to be slipping” say members of the US Treasury Board Advisory Committee – which includes representatives of major banks and bond funds – according to documents published Wednesday.
“The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’”, states one TBAC member’s presentation cited by news agency Bloomberg.
“The fact that there are not currently viable alternatives to the US Dollar is a hollow victory and perhaps portends a deteriorating fate.”
Here in Europe, the yield on Italian and Spanish 10-Year government bonds remained above 6% for most of Thursday morning, following sharp rises earlier in the week that prompted emergency talks between Italian finance minister Giulio Tremonti and Jean-Claude Juncker, chairman of the Eurogroup of single currency zone finance ministers.
Until recently the yield on both countries’ 10-year debt had barely risen above 5% over the last five years – implying investors have begun to demand a higher risk premium for holding it.
“We will continue our meditation,” Juncker told reporters after the talks, which Tremonti described as “fruitful”.
José Manuel Barroso, president of the European Commission, yesterday urged Eurozone governments to “address the sovereign debt crisis with the means commensurate with the gravity of the situation.”
In central bank news, the European Central Bank held its main interest rate at 1.5% on Thursday, while the Bank of England also kept its main interest rate on hold – at 0.5%, where it has stayed since March 2009.
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 1 August, 08:00 EDT
Gold Rallies After Drop, Washington “Kicks Biggest Can Ever”, Global Manufacturing Slows
U.S. DOLLAR gold bullion prices rallied to almost $1620 an ounce Monday morning London time – 0.7% off Friday’s all time high – having dropped sharply as Asia opened, while stocks and commodities rose after US President Obama announced a last-minute debt ceiling agreement.
Silver bullion prices traded around $39.50 per ounce – around 1% down from Friday’s close.
“We see the next resistance point [for gold] as $1670,” say technical analysts at gold bullion bank Scotia Mocatta.
“Only a move back below $1577 would shake this bullish outlook.”
“Gold will be knocked back a little [following the debt ceiling agreement],” reckons Steven Zhu, operations manager at Yinjian Futures in Beijing, noting
“However, problems still exist within the economies of the US and Europe and that will keep gold’s uptrend intact.”
The US Congress is due to vote Monday on whether to raise the $14.3 trillion federal debt ceiling – after Republican and Democrat leaders agreed a deal on cutting the deficit.
The deal would raise the debt ceiling by around $2.1 trillion – avoiding a possible default on US Treasury bonds – while cutting government spending by around $2.4 trillion.
The deal identifies $900 billion in spending cuts spread over the next decade. It would also appoint a commission to identify another $1.5 trillion in cuts by the end of November – with automatic cuts for defense and Medicare if the committee fails to deliver.
“Talk about kicking the can down the road,” says Stephen Roach, economist at Yale University.
“This is probably the biggest can that’s ever been kicked – appointing another commission to do the heavy lifting another day.”
Press reports suggest the bill is likely to pass the Senate, but may face opposition in the Republican-controlled House of Representatives – where several members support the conservative Tea Party movement.
“There’s nothing in this framework that violates our principles…it’s all spending cuts,” House speaker John Boehner told fellow Republicans on Sunday.
“The cuts are not there for the first couple of years,” points out Peter Morici, economist at the University of Maryland.
“[It] makes you wonder if they’re really going to happen at all.”
“A lot of economists feel that this is not the right time…[for] shifting from massive stimulus to massive restraint,” adds Barclays Capital US economist Troy Davig.
Though the US may avoid a default, “a US sovereign rating downgrade is, however, likely” says Marc Ground, commodities strategist at Standard Bank.
“[This] could limit the impending sell-off in precious metals, and especially gold, once an agreement is reached.”
Over in China – the world’s second-largest gold bullion consumer – the Yuan hit an all-time high of $0.1556 against the Dollar on Monday.
“It seems that the central bank intends to take advantage of the weakening dollar to nudge its currency up further in the short-term,” says one trader in Shenzhen.
The PBoC – which last month raised interest rates for the fifth time in less than a year – reiterated on Monday that fighting inflation is its top priority. Consumer price inflation rose to 6.4% in June – its highest level since July 2008.
Barclays Capital says it expects another quarter-of-a-percent rise in the third quarter of 2011 – while the PBoC may also continue to let the Yuan appreciate “to tame imported inflation,” says a Shanghai-based trader.
China’s official purchasing manager’s index for manufacturing fell for the fourth month running in July to 50.7 – down from 50.9 the previous month. A figure above 50 implies the sector is expanding, while one below 50 implies contraction.
The PBoC “finds itself in a quandary” says German gold bullion refiner Heraeus in its latest Precious Metals Weekly.
“On one hand it has to fight inflation but on the other side it cannot raise interest rates too high as that would cramp the already slowing industrial growth.”
This conflict – along with sovereign debt concerns in the US and Europe – makes gold bullion “one of the more preferred asset classes by investors in all the three regions of the world…despite its already high price.”
Here in Europe, Germany’s manufacturing PMI fell to a 21-month low of 52.0 – down from 54.6 in June – while for the Eurozone as a whole manufacturing PMI dropped from 52.0 to 50.4. The Institute for Supply Management releases manufacturing index figures for the US later on Monday.
In the UK, manufacturing PMI fell to 49.1 – implying the sector has contracted.
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 29 July, 08:30 EDT
Gold Rallies, “Credibility Downgrade” Hits “Irresponsible” Washington
THE U.S. DOLLAR gold price climbed to $1617 an ounce Friday morning London time – 0.7% off Wednesday’s all-time high – as stocks and commodities fell following the decision to cancel a vote on proposals to cut the US deficit.
Heading into the weekend, the gold price was looking at a 1% weekly gain by Friday lunchtime.
The silver price hit $39.83 per ounce – a 0.6% down on last week’s close – before easing back around midday.
“If a deal to raise the US debt ceiling is not in place [within a week], federal agencies will be effectively bankrupt,” says French investment bank Natixis.
“Furthermore, fears of a downgrade in the AAA rating of the US are also helping gold, and the country has already received a credibility downgrade in the eye of many investors.”
“Investor reluctance to wait until Monday for a resolution that may not come could see gold climb again after a relatively steady day yesterday,” adds one gold bullion dealer here in London.
The vote on speaker John Boehner’s proposals to reduce the US deficit – due to go before the House of Representatives – was cancelled on Thursday after lobbyists failed to drum up enough support from Boehner’s fellow Republicans.
Boehner reportedly told Republican holdouts to “get your ass in line” on Wednesday.
“I didn’t come here to go along to get along,” responded Republican Congressman Jason Chaffetz.
“These arguments of ‘get behind me’ aren’t persuasive.”
“I’d like something systemic that transcends election cycles,” added Republican Congressman Trey Gowdy.
“Like a balanced budget amendment.”
Boehner’s proposal would raise the debt ceiling by around $900 billion, meaning the US Treasury would likely hit it around December this year.
“No Democrat will vote for a short-term Band-Aid that would put our economy at risk,” says Senate majority leader, Democrat Harry Reid.
The White House has also said it would veto Boehner’s plan if it got through the Senate.
Beijing’s state-run Xinhua news agency said on Friday that the US has been “kidnapped” by “dangerously irresponsible” politicians.
China is meantime poised to overtake India as the world’s largest gold bullion consumer, according to the chief executive of world’s second largest Gold Mining firm Goldcorp.
Here in Europe, ratings agency Moody’s placed Spain on review for possible downgrade on Friday.
The decision should “return focus to the not entirely settled Eurozone debt situation,” says Marc Ground, commodities strategist at Standard Bank.
Spanish prime minister Jose Zapatero announced shortly afterwards that he was calling early elections, “to project political and economic certainty for the next few months”.
The elections will take place on November 20.
Eurozone inflation meantime fell to 2.5% this month, compared to 2.7% in June, according to data released Friday by Eurostat, the European Union’s statistics body.
By contrast, inflation in the Eurozone’s biggest economy, Germany, rose this month – up to 2.4%, compared to 2.3% in June –data published on Thursday show.
The lower-than-expected Eurozone figure gives the European Central Bank ” more room for maneuver given signs of a sharper than expected slowdown in economic growth,” says ABN Amro economist Nick Kounis.
“Essentially, a more favorable inflation evolution could make it easier for the ECB to take a break from rate hikes if the downside risks to the outlook were to intensify,” he adds, citing sovereign debt problems on both sides of the Atlantic.
“Eurostat’s methodology for seasonal factors has [however] changed from January,” points out Luigi Speranza, economist at BNP Paribas.
“This, we believe, is the main cause underlying the sharp slowdown in [consumer price] inflation.”
In Switzerland, meantime, “the appreciation of the Swiss Franc against all major investment currencies resulted in substantial valuation losses” in the first half of the year, the Swiss National Bank said Friday.
The SNB lost CHF9.9 billion in transactions designed to control the Swiss Franc’s rising value on currency markets. The Swiss Franc is regarded by many investors as a ‘safe haven’ currency.
The Swiss Franc gold price fell 4.8% over the first half of 2011 – while the US Dollar gold price rose 6.1% over the same period.
“Gold is denominated in a unit which is non-constant,” points out a note from Citigroup today, adding that the US Dollar “has tended to decline in value thereby artificially inflating the metal’s nominal price”.
“Given the historical role of gold as a storage of wealth, perceived devaluation in the purchasing power of fiat currencies translates into demand for the what is essentially the ultimate global reserve currency.”
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.
