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from Adrian Ash

BullionVault

Mon 14 May, 08:20 EST

Bull Market in Gold “Not Over” But Speculators Turn Bearish as Greek Insolvency Looms

THE PRICE OF GOLD and gold futures dropped yet again Monday morning, recording the seventh drop in nine trading days in May so far as industrial commodities, global stock markets and the Euro currency all sank amid Athens’ failure to negotiate a new coalition government.

Silver bullion also fell hard, touching $28.44 per ounce and losing 8.9% from the start of this month.

The price of Spanish government debt today fell yet again, pushing 10-year yields above 6.2% ahead of an auction of new bonds later today.

Greek public-sector salaries and state pensions may be unpayable “from the beginning of June” says a letter from stand-in prime minister Lukas Papadimos to party leaders, republished by Ta Nea, after May’s tranche of the international bail-out was cut and tax revenues came in below target.
“We do not think the gold bull market is over,” says a note from Morgan Stanley analysts, even though “gold has moved lower and is trading at levels not seen since December 2011.”
Viewed on a technical chart analysis, “Damage has certainly been done [but] we do not think it is irreversible,” they add, pointing to a sharp rise in speculative “short selling” by gold futures traders now expecting prices to fall further.

“The last time positioning was at these levels, prices embarked on a move higher, rallying to near $1800 per ounce. We are buyers of gold here.”

The rise in speculative short-selling of gold futures is “disconcerting” however, says Marc Ground at Standard Bank, because “while investors have over the past few weeks appeared cautious of running too short on gold, this fear seems to have evaporated.”

Over in the currency markets – where the Euro fell to new 4-month lows vs. the Dollar at $1.2860 – “We continue to target $1.20 for Euro/Dollar,” says Ground’s colleague, currency strategist Steve Barrow.

“Whether this takes time, or comes in an instant, could depend on the outcome of Greece’s political impasse.”

Energy, metal and food prices all sank once more Monday morning as European stock markets lost more than 2% of their value, with Madrid losing 3% and Athens dropping 5.3%.

At the weekend Swedish central banker Per Jansson said that “of course the question [of a Greek exit] is discussed.” Irish central bank chief, and fellow European Central Bank policymaker Patrick Honohan told journalists that “technically, it can be managed.”

“We wish it to be possible for Greece to remain in the euro but Greece must live up to its commitments,” a spokeswoman for the European Commission said Monday morning.

If Greece breaches the agreed terms of its bail-out deal then staying in the Euro would be “an impossible equation and I think in that sense it is an irresponsible statement,” said Finland’s Europe minister Alexander Stubb today about the ongoing calls for an end to cuts in Athens.

German chancellor Angela Merkel meantime suffered a drubbing in a state election on Sunday, with her Christian Democratic Union drawing only 26% of the vote in North Rhine-Westphalia, giving the coalition of Social Democrats and Greens a winning majority of 50%.

Price inflation in Germany’s wholesale markets rose sharply in April, new data showed today, while industrial production across the 17-nation Eurozone fell much harder than forecast, down 2.2% year on year.

On the FX market, the Euro today hit fresh 42-month lows vs. the British Pound, but fell less quickly than gold futures or bullion, with the gold price for Eurozone buyers slipping beneath €39,100 per kilo for the first time this year.

For Indian buyers, “The weakness of the Rupee is countering the fall in the Dollar gold price,” says Jeffrey Rhodes, global head of precious metals at INTL Commodities DMCC in Dubai, speaking to the Wall Street Journal.

“That’s likely to act as a drag on demand in the world’s biggest market.”

“There is hardly any work these days,” complains a Jaipur goldsmith to The Times of India. “First the 21-day long jewelers’ strike and now the increasing gold prices have rendered us jobless.

“It is getting tough for us to survive.”

India’s imports of gold bullion fell by two-thirds last month compared with April 2011.

Gold futures on the Multi Commodity Exchange in Mumbai today slipped back to a 5-week low, down 3.3% from early May’s new all-time highs.

Adrian Ash

BullionVault

Gold price chart, no delay |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

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

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BullionVault

Friday 4 May2012,09:00 EDT

Gold Rallies Following Disappointing Nonfarm Jobs Data, Gold in PoundsTouchesLowest Level This Year, Fed Interest Rates “Too Low” by Taylor Rule

U.S. DOLLARgold prices rallied to $1640 an ounce Friday, following the release of disappointing US nonfarm jobs data, though they remained more than 1% down on last Friday’s close.

Silver prices also spiked higher, touching $30.19 per ounce – still 3.4% down on the week – while European stocks were down on the day and government bond prices up by Friday lunchtime in London.

Friday’s monthly nonfarm payrolls report shows that the US economy added 115,000 nonagricultural private sector jobs in April, while the unemployment rate fell to 8.1%, down from 8.2% a month earlier.

Consensus forecasts among analysts before the release was for the economy to have added around 170,000 jobs, while Federal Reserve chairman Ben Bernanke last week said the economy needs to create between 150,000 and 200,000 jobs each month to meet Fed projections.

“[A disappointing] outcome would probably be more positive for gold,” said Anne-Laure Tremblay, analyst at BNP Paribas, speaking on Friday morning before the nonfarms release.

“It would raise the possibility of further monetary accommodation by the Fed before the end of the year.”

“Currently [however] the US Taylor rule signals that the Fed funds rate might be too low,” points out Marc Ground, commodities strategist at Standard Bank, referring to the idea that the fed funds rate should be determined by inflation and unemployment levels.

“Whether this is a bearish signal for precious metals in general, and gold specifically, depends on how the Fed reacts relative to what the Taylor Rule suggests.”

Earlier in the day, gold prices dipped below $1630 per ounce – at that point 2% down on where they ended last week. 

Sterling gold prices at one point fell as low as £1006 per ounce – their lowest level in 2012.

Silver prices meantime fell below $30 an ounce for the first time since January today.

“Given our view on Chinese silver stockpiles and the impact on imports, we believe that silver upside remains capped,” says Standard Bank’s Ground, referring to the bank’s house view that Chinese warehouses currently have enough silver bullion to meet domestic industrial demand for around 15 months.

“Should Chinese imports stay low for a few months and stock levels deplete, we believe that China will have to come back and restock. This, we believe, could provide enough support for the metal to push prices above $35, towards $40, in Q4:12 [the fourth quarter of 2012].”

Here in Europe, activity in the Eurozone services sector continued to contract in April, and at a faster rate, according to the latest purchasing managers’ index .

Eurozone services PMI fell to 46.9 last month – down from 47.9 in March – according to survey data published Friday.

“The survey suggests that the [Eurozone] economy was contracting at a quarterly rate of around 0.5% in April, extending the downturn into a third successive quarter,” says Chris Williamson, chief economist at Markit, which produced the PMI.

“Remaining tensions in some Euro area sovereign debt markets and…the process of balance sheet adjustment in the financial and non-financial sectors and high unemployment, are expected to continue to dampen the underlying growth momentum,” said European Central Bank president Mario Draghi yesterday.

Draghi was speaking at a press conference in Barcelona, following the ECB’s decision to leave its main policy interest rate on hold at 1%.

“There are significant downside risks to the ECB’s growth outlook,” says Joerg Kraemer, Frankfurt-based chief economist at Commerzbank. 

“Draghi indirectly hinted at next month’s ECB meeting when the bank will publish its new projections. Since the ECB may lower its growth forecasts, the rate-cut discussion will stay with us.”

“ECB hopes that the economy is recovering have turned to dust,” adds Standard Bank currency strategist Steve Barrow.

“We expect the ECB to react with a 25 basis point [0.25 percentage point] rate cut as early as June’s meeting.”

Over in China – the world’s second-biggest source of gold bullion demand last year – HSBC’s purchasing managers index shows services sector growth accelerated last month, with the HSBC PMI rising to 54.1, up from 53.3 for March.

In world number one gold market India meantime, record high Rupee gold pricesare weighing on demand, according to Indian jewelry dealers.

“We have to see physical buying coming back before gold can stabilize,” says Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

“Otherwise, we can test $1,625 again. We don’t know when the Indians will come back.”

Ben Traynor

BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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

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Gold “Caught in Range”, Europe “Heading for Suicide by Austerity” as S&P Downgrades Spain

SPOT MARKETprices to buy gold remained steady around $1650 an ounce during Friday morning’s London trading – well within their range from mid-March – as stock markets and commodity prices were also flat and US Treasury bonds gained following a credit ratings downgrade for Spain.

Heading into the weekend, gold looked set to record its seventh successive Friday PM gold fix between $1600 and $1700 an ounce.

Prices to buy silver meantime held above $31 an ounce this morning after rallying in Thursday’s US trading – though they remained 2% down on the week by Friday lunchtime in London.

“Our concern with silver,” says the latest precious metals note from investment bank Natixis, “as with gold, is that when global markets begin to return to a greater degree of normality, the outflow from investors may be substantially larger than the inflow from industrial or jewelry demand, which could lead to substantial weakness in silver and gold prices.”

Ratings agency Standard & Poor’s last night downgraded Spain two notches from A to BBB+, adding that the outlook for the sovereign is ‘negative’.

“The [Spanish] government has committed to a target of 5.3% of GDP in 2012 and 3.0% in 2013,” said an S&P statement.

“In our opinion, these targets are currently unlikely to be met given the economic and financial environment. We forecast a budget deficit of 6.2% of GDP in 2012 and 4.8% in 2013.”

Yields on 10-Year Spanish government bonds rose to touch 6% this morning, but by Friday lunchtime actually looked set to close slightly down on the week.

German 10-Year bund yields meantime fell as low as 1.65% Friday morning, close to record lows hit earlier in the week.

Despite the Spanish downgrade, European stock markets edged higher this morning, although the Euro Stoxx 50 index of the leading Eurozone blue-chip firms remains more-or-less where it was six months ago.

“We are probably going to see more downgrades from other rating agencies,” reckons Philippe Gijsels, Brussels-based head of research at BNP Paribas Fortis Global Markets.

“You will continue to see this consolidation phase [in stocks] for some more time as the newsflow is likely to be predominantly negative.”

“Europe is headed to a suicide,” said Nobel Prize-winning economist Joseph Stiglitz Thursday.

“There has never been any successful austerity program in any large country…the European approach definitely is the least promising.”

French Socialist Party leader Francois Hollande, who received the highest share of the vote in last Sunday’s French presidential election first round, called this week for European economic policies to prioritize growth rather than austerity, adding that he would hold a “firm, friendly discussion” with German chancellor Angela Merkel if elected.

“It’s not for Germany to decide for the rest of Europe,” Hollande told French television last night.
Earlier in the week, Hollande said the European Stability Mechanism, the permanent bailout fund due to come in in July, should be given “the necessary firepower” by the European Central Bank.

“I’ve always campaigned for the statute of the ECB to be revised,” Hollande said.

“I know Germany’s reticence, but it would be better for the ECB to be able to intervene as the first and last resort for states.”

“Herr Hollande has misunderstood the problems in his country and in other Euro area countries,” Michael Meister, a member of Merkel’s CDU party, told Bloomberg Friday.

“If one throws money into a country with structural problems that won’t solve those structural problems…the aim is to gain control over excessive debt, not increase it.”

“A growth pact has to be focused on structural reforms,” agreed Spain’s economy minister Luis de Guindos yesterday.

“I do not see that the growth pact should involve any sort of fiscal boost or stimulus.”

The Euro meantime rallied against the Dollar in Friday morning’s European trading, climbing back above $1.32.

“The Euro/Dollar has held above $1.30 for some time, in the $1.30-$1.32 range, which coincides with gold also being caught in a range,” says Robin Bhar, head of metals research at SocieteGenerale.

“If the Eurozone crisis deepens and we see the Euro/Dollar correct below $1.30, that could give a bit of a lift to gold.”

The Pound also rallied against the Dollar Friday, hitting breaking through $1.62 to hit its highest level since last September.

Prices to buy gold in Sterling fell to £1019 an ounce – 0.6% below yesterday’s high for the week.
Earlier on Friday, the Bank of Japan announced a further ¥5 trillion ($62 billion) in quantitative easing on Friday, while also leaving interest rates on hold at 0.1%.

Over in China, the Shanghai Futures Exchange said Friday it is cutting its commission on various gold futures contracts in an effort to support liquidity. Commissions on gold trading will fall from 30 Yuan per lot to 20 Yuan per lot.

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.

Gold in Pounds Sterling Briefly Hits Four-Month Low, America’s “Fiscal Cliff” Means Federal Reserve “May Need to Ease Again”

SPOT MARKETprices forgold bullion traded steady Thursday morning, around $1650 an ounce during London’s morning session – slightly higher than where they started the week.

“[Gold] trend line support is seen at $1627 on the weekly chart,” says the latest technical analysis from Scotia Mocatta.

“A close below this level on Friday will bring in liquidation selling of stale long gold positions.”

Gold prices briefly touched $1627 per ounce on Wednesday following the latest Federal Reserve interest rate decision, before rallying to touch a one-week high at $1653 this morning.

The gold price in Sterling meantime briefly hit a four-month low at £1008 per ounce following Wednesday’s Fed decision, before it too bounced back higher.

Silver bullion meantime failed to break above $31 per ounce – remaining around 3% down on the week so far – while stocks and commodities were also broadly flat as markets digested the latest statements from US policymakers.

In its official statement yesterday, the Federal Open Market Committee reiterated its view that economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014″.

The Fed however published projections showing that only four FOMC participants expect that the appropriate rate at the end of that year will still be 0.25% or below, compared to six when projections were last published back in January.

By contrast, ten of the seventeen participants expect the appropriate rate at the end of 2014 will be 1% or above – up from eight in January.

“The Fed’s interest rate forecasts,” writes Robin Harding at the Financial Times, “are getting the bank into a real bind.”

Harding points out that Bernanke defined “exceptionally low” rates as “close to where we are now”, meaning the FOMC statement is at odds with participants’ projections.

“The result is a complete mess,” writes Harding.

“This confusion undermines the cause of greater transparency that Mr. Bernanke has worked so hard to advance.”

“Strains in global financial markets,” adds yesterday’s FOMC statement, “continue to pose significant downside risks to the economic outlook.”

This was identical to the phrase used in March’s statement, with the exception that this time the FOMC did not say these strains have eased.

The US economy meantime needs to add between 150,000 and 200,000 jobs each month to meet fed forecasts, Fed chairman Ben Bernanke told a press conference following the interest rate announcement.

America’s economy is facing a “fiscal cliff” at the end of this year, US Treasury secretary Timothy Geithner warned Wednesday.

“The simultaneous expiration of tax cuts and large across-the-board cuts in spending… presents a risk,” Geithner said.

“If you try to restore fiscal balance without a penny of additional revenue, then you have to cut deeply – too deeply – into critical functions of government.”

“If Congress can’t respond to the prospect of much tighter fiscal policy,” says Steve Barrow, currency analyst at Standard bank in London, “then it may be up to the Fed again to cushion the economy through easy monetary policy.”

Here in Europe, “the soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalization of their funding channels,” European Central Bank president Mario Draghi told the European Parliament Wednesday.

“I consider it of crucial importance that banks strengthen their resilience further, including by retaining earnings and by retaining bonus payments.”

European banks borrowed over €1 trillion at the ECB’s two longer term refinancing operations in December and February, with Draghi saying it is “encouraging” that much of this money was borrowed by small banks as these “are best placed to refinance the real economy”.

In the UK, British bank Barclays on Thursday reported a 22% rise in first quarter pretax profits compared to Q1 2011.

Over in India meantime, early reports suggest there was a significant drop in gold buying for this year’s AkshayaTritiya festival, which fell on Tuesday this week, compared to last year.

Gold bullion sales are estimated to have dropped by around 50% to 10 tonnes, newswire Reuters 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.

Dutch Debt “On Edge of Downgrade”, Central Banks Add to Gold Reserves

SPOT MARKETgold prices climbed to $1643 an ounce Tuesday lunchtime in London – a 1.2% gain from yesterday’s low, but still below Friday’s close – as Eurozone concerns focused on the Netherlands after yesterday’s government collapse.

Based on the PM London gold fix, gold prices remain 3% below their 200-day moving average.

Silver prices rallied back above $31 an ounce by Tuesday lunchtime – though they remained around 2% off where they began the week – while European stock markets edged higher following Monday’s steep drop and commodities also made gains this morning.

The Euro meantime regained a bit of ground against the Dollar, though remained below last week’s close, with the Federal Open Market Committee due to announce its latest monetary policy decisions tomorrow.

“If the Fed fails to hint at more quantitative easing, we may see a sharp drop ingold prices,” says HouXinqiang, analyst at Jinrui Futures in Shenzhen, China.

“With the Dollar being slightly stronger, there is no reason at the moment to be interested in gold,” adds David Wilson, metals research and strategy director at Citigroup.

Since this time last year, the Dollar Index, which measures the strength of the Dollar against a basket of other currencies, has risen nearly 9%.

Over the same period, sales of investment gold coins by the US Mint have fallen more sharply than those for silver, the latest US Mint data shows.

The Netherlands successfully sold €1 billion of 2-Year government debt – as well as a further €0.995 billion in 25-Year government bonds – at auctions on Tuesday, following the collapse of its government a day earlier.

Average yields were little changed on previous similar auctions. The spread between benchmark 10-Year yields on Dutch and German government bonds however hit a three-year high Monday, as 10-Year bund yields fell to a record lows below 1.64%.

The collapse of the Dutch minority government, after it failed to get backing for its austerity plans, “is clearly credit-negative for the Dutch sovereign,” says Sarah Carlson, London-based senior analyst at ratings agency Moody’s.

“It generates both political and policy uncertainty.”

“The Dutch are on the edge of a negative rating action,” said Chris Pryce, director, Western Europe at fellow ratings agency Fitch last week, speaking to the Telegraph.

The newspaper reports that the Netherlands has half a million homeowners – nearly 3% of its population – in negative equity. Dutch central bank governor Klaas Knot has warned that borrowing costs will rise if the country loses its AAA status, as its debt is not regarded by investors as a safe haven in the same way as that of Germany and the US.

Here in the UK, public sector net borrowing was £15.9 billion last month – up from £15.1 billion in March 2011 – according to data published Tuesday by the Office for National Statistics.

Excluding the effects of financial interventions – the government’s preferred measure – net borrowing last month was £18.2 billion – compared to £18.0 billion a year earlier.

The March figures mean that borrowing as a percentage of GDP fell from 9.27% in the financial year 2010/11 to 8.30% in 2011/12. Preliminary first quarter GDP figures are due out Wednesday.
“They are making gradual progress in reducing the deficit,” says Royal Bank of Scotland economist Ross Walker.

“[But] it’s going to get more difficult in subsequent years…we haven’t really had any significant current expenditure cuts.”

Overall debt meantime rose from £905.3 billion (60.5% of GDP) to £1, 022.5 billion (66.0% of GDP) in the year to the end of March.

Gold prices in India rose to their highest level in two months, India’s Economic Times reports, hitting Rs 29,100 per 10 grams as many Indians celebrated the festival of AkshayaTritiya, traditionally considered an auspicious day to buy gold.

Central banks worldwide added nearly 58 tonnes of gold bullion to their reserves last month, with Mexico and Russia each buying over 16 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.

Gold, Stocks and Euro All Down after China Manufacturing News, Bullion Refiners “Stocking Up” for Europe but Concerns Over Liquidity “Cap Upside” for Gold

PRICES TO buy gold bullion on the wholesale market dropped to $1630 an ounce during Monday morning’s London session – a 2.3% drop from where they started the month – while stock markets and industrial commodities also traded lower following the release of preliminary Chinese manufacturing data.

“Gold remains in a short-term bear channel,” say technical analysts at bullion bank Scotia Mocatta.

“We would expect a test of support from the long-term uptrend…[which] comes in around $1600.”

Silver bullion dropped to near 3-month lows, hitting $31.09 per ounce ahead of the US session.
Ahead of the Federal Reserve meeting which starts tomorrow, the US Dollar gained against the Euro, despite news that the International Monetary Fund has almost doubled its effective crisis-lending capacity.

European stock markets sold off heavily, with the UK’s FTSE down 1.7% by lunchtime, and Germany’s DAX off 2.7%.

Activity in China’s manufacturing sector has continued to contract this month, according to data published Monday. The HSBC purchasing managers index (PMI) for this month came in at 49.1 – up from 48.3 for March (a figure below 50 indicates sector contraction).

The slight rise in the PMI figure “suggests that the earlier easing measures have started to work and hence should ease concerns of a sharp growth slowdown,” according to HSBC’s Chief Economist for China QuHongbin.

“The pace of both output and demand growth [however] remains at a low level in an historical context and the job market is under pressure. This calls for additional easing measures in the coming months.”

The international community has pledged a total of $430 billion in additional IMF contributions – a move that would almost double the Fund’s lending capacity – IMF managing director Christine Lagarde revealed at the IMF’s Spring Meetings, which ended at the weekend. The US however declined to increase its contribution.

IMF money will not be earmarked for any particular country, an official statement said, although its latest World Economic Outlook last week carried a section on sovereign funding stresses in the Eurozone.

The report advises that the European Central Bank “should lower its policy rate while continuing to use unconventional policies to address banks’ funding and liquidity problems.”

“None of the advice of the IMF has been discussed by the Governing Council,” said ECB president Mario Draghi on Friday.

The government debt of Eurozone nations rose to a Euro era high of 87.2% of gross domestic product last year – up from 85.3% a year earlier – according to official European Union data published Monday.

Reports on Monday morning suggested Netherlands prime minister Mark Rutte was on the verge of resignation, after the Freedom Party walked out of talks on austerity measures and said it was ending its agreement to support Rutte’s minority government. The Netherlands is expected to record a government deficit of 4.6% of GDP this year, compared to a target of 3%.

Over in France meantime, Socialist Party candidate François Hollande led the first round of the French presidential election, the results of which were announced Sunday. Hollande received 28.6% of the vote, compared to 27.1% received by incumbent Nicolas Sarkozy. Marine Le Pen, leader of Front National, came third with 18.1%.

“The first round may offer a glimmer of hope for Sarkozy,” says HolgerSchmieding, chief economist at Berenberg Bank.

“But it also entails a risk that he could pander to right-wing sentiment on European issues in the next two weeks. Stronger calls for a ‘growth mandate for the ECB’ and the like may not go down well in Berlin and Frankfurt.”

Calls for economic growth as well as price stability to form part of the ECB’s mandate have become a campaign issue in the French election, and form part of Hollande’s manifesto.

Gold bullion refiners have been stocking up on small gold bars popular with European gold buyers, in preparation for an escalation in the Eurozone crisis, according to John Dizard at the Financial Times.

“Somewhere near Geneva airport,” writes Dizard, referring to a major hub of the gold refining industry, “candles are being burned in front of the image of François Hollande. I think that simple faith will be rewarded soon.”

However, “concerns over Europe are capping [gold's] upside,” says Tobias Merath, head of global commodity research at Credit Suisse.

“The situation in Europe has the potential to lead to deteriorating liquidity conditions…as we saw at the end of last year, gold is a hedge against all kinds of crises, but not against a liquidity problem, when people are liquidating assets to raise much-needed cash. They also sell gold in this environment.”

Over in India meantime gold dealers have reported a pickup in business ahead of tomorrow’s AkshayaTritiya festival – traditionally seen as an auspicious day tobuy gold.

On New York’s Comext exchange meantime, the difference between bullish and bearish contracts held by noncommercial gold futures and options traders – the so-called speculative net long – rose 2.2% in the week ended last Tuesday, according to Commodity Futures Trading Commission data published late Friday.

Although spec long positions fell by the equivalent of almost 11 tonnes of gold bullion, noncommercial Comex traders reduced their aggregate short exposure by nearly double that, with short positions falling by the equivalent of 20.7 tonnes.

“While investors are not overly bullish,” says Standard Bank commodities strategist Marc Ground, “the drop in short positions is somewhat encouraging as a sign that investors are cautious of running too short.”

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.

“Waning Enthusiasm” for Precious Metals as Prices Drift, Bank of England says “Uncomfortably” High Inflation “Might Be Persistent”

SPOT MARKETgold bullion prices drifted lower in Wednesday morning’s London trading, hitting $1640 an ounce ahead of US trading – a 1.1% fall on the week so far – while stock markets also fell and commodities were broadly flat.

Silver bullion fell as low as $31.52 per ounce – broadly in line with where it started the week.
UK government bond prices dipped – while German bunds gained as Eurozone concerns continued to focus on Spain.

“This morning, we’ve seen [precious metals] succumb to waning investor enthusiasm,” says Marc Ground, commodities strategist at Standard Bank.

“People won’t want to commit too much at this point,” agrees Ronald Leung, a dealer in physical bullion at Lee Cheong Gold Dealers in Hong Kong.

“There is some [gold] buying when prices fall to the $1630-$1640 level, but the volume shrinks when prices rebound to $1660-$1670.”

The daily average volume of gold bullion transferred between parties by clearing members of the London Bullion Market Association rose to 622 tonnes last month, a 3.8% gain on February, according to LBMA figures published Tuesday.

“The value of transfers [however] was broadly unchanged a $33.8 billion,” the LBMA reports, “reflecting the fact that higher trading activity was offset by the fall in the gold price”.

On an annual basis, the daily average volume of gold transferred was up 6.4% on March 2011.
Transfers of silver bullion meantime averaged 4889 tonnes – a 1.8% fall on February.

European stock markets traded lower Wednesday morning, with the FTSE in London down around 0.5% and Germany’s DAX off 1% by lunchtime. The falls are in contrast with gains seen in Asia and Tuesday’s US session.

These rallies followed publication Tuesday of International Monetary Fund forecasts showing the IMF has revised upwards its expectations for global economic growth, though it says it still expects the Eurozone’s economy to shrink.

Yields on 10-Year Spanish government bonds eased slightly to 5.8% Wednesday morning, ahead of tomorrow’s auction of 2-Year and 10-Year debt.

Analysts are concerned however that Spain’s struggling economy could threaten a banking crisis and compromise the government’s fiscal position.

“If you look ahead, let’s say the next six months, I would not be surprised if [Spanish banks] have to get some kind of European support,” says CarstenBrzeski, Brussels-based senior economist at ING, adding that banks would need funds from the European Financial Stability Facility, the Eurozone’s temporary bailout fund set up in 2010.

The number of non-performing loans on Spanish bank balance sheets “will have to rise when you take into account the unemployment rate and what’s happening with the economy,” says Andrew Bosomworth, head of portfolio management at world’s largest bond fund Pimco in Munich.

“One of our concerns in Spain is to what extent contingent liabilities could pass to the central government.”

In New York, hedge fund boss John Paulson – whose firm offers investors gold bullion denominated funds – has told investors he is shorting German bunds because he expects deterioration in the Eurozone will end up affecting Germany’s creditworthiness, the Financial Times reports.

Here in the UK, “elevated inflation might be more persistent” than the Bank of England’s Monetary Policy Committee previously expected, according to minutes published Wednesday of the MPC meeting earlier this month.

Only one MPC member voted to increase quantitative easing – down from two members last month.

The publication of the minutes – as well as that of a speech by MPC member Paul Tucker in which he describes inflation as “uncomfortably above target” – was followed by the Pound rallying against the Dollar.

The gold price in Sterling fell to £1026 per ounce by lunchtime in London – 1.9% down on where it ended last week.

UK unemployment meantime fell to 8.3% in February – down from 8.4% a month earlier – according to the International Labour Organization’s 3-month unemployment data published this morning.

The majority of reserve managers at the world’s central banks consider gold a more attractive investment than last year – while they are wary of Euro exposure – according to a new survey by Central Banking Publications.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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