by Adrian Ash
BullionVault
Mon, 15 Aug. 2011
Gold Demand “Strong on Dips” as Confidence in Currencies “Goes Down the Drain” 40 Years After Gold Standard’s End
WHOLESALE PRICES to buy gold held above $1730 in London trade Monday morning – the 40th anniversary of US president Richard Nixon “closing the gold window” and officially ending the $35-per-ounce Gold Exchange Standard.
Trading nearly 4.7% below last week’s new all-time high of $1815, the price to buy gold stood 50 times higher from the official US Dollar exchange rate of 15 August 1971.
Crude oil has risen nearly 24 times over since then, while US consumer prices (on the official measure) have risen 5-fold.
The S&P 500 stock market index has risen a little over 12-fold since August 1971.
“The metals had a fairly tamed start to the week,” says a note from Mitsui’s Hong Kong office on the $20-per-ounce overnight fall in the gold price.
“That provided a good opportunity to Chinese [traders], who bought either to establish long positions or to sell against Shanghai [as it] showed high premium.”
Prices to buy gold on the Tokyo wholesale market also rose versus the London benchmark, cutting their discount to 75c per ounce as prices fell – the lowest since Dec. 2010 according to Reuters.
“We haven’t seen much scrap and…are getting good physical demand from Indonesia and Thailand,” it quotes a Singapore dealer today.
Anecdotal reports quoted by the newswire on Friday claimed that scrap gold supplies – sales by the general public of unwanted or broken jewelry – have been drying up in New York, Mexico City and Chennai, India despite this month’s 11% jump in the gold price.
“While there are decent amounts of scrap gold coming to market from Asia, this is being outweighed by physical buying,” says today’s note from Standard Bank in London.
“Buying should increase on price pull-backs as we head into high seasonal demand” from Indian households ahead of the Diwali festival in late October.
Tokyo and other Asian stock markets meantime rose sharply this morning after new data showed Japan’s economy shrinking less quickly than analysts forecast after March’s tsunami and nuclear crisis.
European stock markets also rose, extending their two-day rally from the summer’s 25% plunge in French and German equities.
“There won’t be a collectivization of debt or unlimited assistance,” said German finance minister Wolfgang Schäuble in today’s edition of Der Spiegel, denying the joint-government bond solution to the Euro debt crisis set for discussion this week by Chancellor Angela Merkel and her French counterpart, Nicolas Sarkozy.
“Eurobonds would mean that everybody shares the same interest burden which would be a punishment for [fiscally] prudent nations,” added Berlion’s economic minister Philipp Roesler today, quoted by the DAPD news agency.
“Confidence in our currencies, policy makers and central banks is going down the drain,” says Swiss asset manager Felix Zulauf in the latest edition of Barron’s magazine.
“That will be reflected in a rising gold price.
“I have long said this isn’t an environment for investing in stocks. Hold cash in the form of short- to medium-term Treasuries. Own a lot of gold, and don’t have debt.”
Desperate to suppress the surging Swiss Franc against the Euro, the Swiss National Bank injected cash equal to 20% of the country’s annual economic output into the banking sector last week, reports the Financial Times‘ Gillian Tett today.
As a result, “Implied Swiss interest rates plunged into negative territory,” Tett writes. “If you want to lend Swiss Francs or make a deposit in the next year, you must pay for the privilege.
“Call it Alice in Wonderland economics.”
Analysts meantime continued on Monday to guess at the size of last week’s intervention by the European Central Bank in the Italian and Spanish bond markets, with Gary Jenkins of Evolution Securities pegging the ECB’s bond buying between €10 billion and €15bn.
“Spain and Italy between them are expected to come to the market for over €100bn of medium to long term funding for the rest of this year,” Jenkins adds in a note, “which could mean official support for the markets may have to be substantial.”
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 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.
by Ben Traynor
BullionVault
Monday 25 July, 08:30 EDT
Gold Breaks Through $1620 with 8 Days Left until US Debt Ceiling “Suicide”
THE DOLLAR gold price held steady around $1619 an ounce Monday morning London time – up 1.2% from Friday’s close – just below its new all-time record of $1623 per ounce set at the start of the day’s Asian trade.
Stock and commodity markets and longer-dated US Treasury bonds all fell after it became clear Washington is no closer to solving its debt ceiling stalemate.
Silver prices meantime rose to $41.08 per ounce Monday morning – 2.5% up from Friday’s close – before easing back slightly.
“Against the backdrop of [the US debt ceiling] uncertainty, investors unsurprisingly flocked to the precious safe-havens of gold and silver,” says one gold bullion dealer here in London.
“A lot of [the gold price rise] is undoubtedly fear,” agrees Ben Westmore, commodities economist at National Australia Bank, adding that the outlook for US Treasuries and the Dollar is causing concern for traders.
“At the moment, the US is looking a bit unstable and gold is a pretty good substitute.”
Despite leaders from each party calling for a “bipartisan” solution, Republicans and Democrats are now preparing rival plans to deal with the US federal deficit. Eight days remain before the country hits its $14.3 trillion debt ceiling.
Congress will not raise the debt ceiling until it agrees on how to tackle the deficit.
House of Representatives speaker John Boehner said Sunday he is working on a proposal which would embrace the principles of Cut, Cap and Balance – a bill which called for a balanced budget to be made part of the US Constitution.
Cut, Cap and Balance was passed by the House last week but defeated in the Senate.
Boehner’s proposal is “a nonstarter”, reckons Senate majority leader, Democrat Harry Reid, as it “would not provide the certainty the markets are looking for”.
Reid is working on his own proposal to see the US through to the end of next year. Reid’s plan would involve $2.7 trillion of spending cuts and does not include increased tax revenues.
“The debt ceiling debacle unambiguously translates into an intensification of the already-strong headwinds facing US growth and employment creation,” says Mohamed El-Erian, chief executive of world’s largest bond fund Pimco.
“In most likelihood, a last-minute political compromise will avoid a default but will leave the AAA rating extremely vulnerable.”
Ratings agency Standard & Poor’s this month warned there is a 50% chance it will downgrade the US within the next three months. Fellow ratings agency Moody’s has also put the US on review for a possible downgrade.
Central bankers in charge of foreign exchange reserves “must be more nervous than before,” says a senior official at the Bank of Korea – speaking to news agency Reuters on condition of anonymity.
“But nobody thinks Americans will choose suicide when they have known solutions.”
More crucial than the debt ceiling “will be the situation in housing, the jobs market and asset prices,” says London commodities consultancy VM Group in its latest Metals Monthly.
“If the jobless rate creeps back towards 10% and home prices slide further, then there remains little doubt that further [Federal Reserve] policy stimulus will be unveiled.”
A third round of quantitative easing “will prompt a fresh gold rally,” the consultancy reckons.
Here in Europe meantime Moody’s responded to last week’s announcement of a rescue package for Greece by pushing Greek sovereign debt even further into junk territory on Monday – from Caa1 to Ca.
“The support package incorporates the participation of private sector holders of Greek debt, who are now virtually certain to incur credit losses,” said a Moody’s statement.
“If and when the debt exchanges occur, Moody’s would define this as a default by the Greek government on its public debt.”
Over in New York, figures from the Commodities Futures Trading Commission for the week ended 19 July show a jump of 11.3% in the net long position of bullish minus bearish contracts held by speculative futures and options traders.
Long positions grew 7.2%, while short positions fell by 13.9%.
“The drop-off in speculative shorts is encouraging,” says Marc Ground, commodities strategist at Standard Bank.
Speculative shorts, however, remain “way above last year’s average…which still points to a gold price that is vulnerable to shifts in investor sentiment.”
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 20 July, 08:30 EDT
Gold Falls as Obama Calls for “Gang of Six” to “Talk Turkey”
U.S. DOLLAR prices to buy gold fell Wednesday morning London time, dropping below $1584 per ounce – a 1.5% drop from the previous day’s all-time high – while stock and commodity markets continued to recover after losing ground for much of the last week.
US Treasury bonds dipped despite President Obama’s endorsement of a deficit reduction plan crafted by a so-called “Gang of Six” US senators.
Beijing today called on the US to act responsibly. China also repeated its assertion that it has no large scale plans to use its foreign exchange reserves to buy gold.
“Slips [in the price to buy gold] should find support around the previous all-time high, made in May around $1577.50, or along the breached May to-July resistance line at “1549.07,” says Axel Rudolph, senior technical analyst at Commerzbank.
“Only a close [on Wednesday] below $1577 will introduce a deeper correction,” agreed technical analysts at bullion bank Scotia Mocatta.
The price to buy silver also fell Wednesday morning, hitting $38.38 per ounce – 2.3% down for the week so far.
President Obama on Tuesday endorsed a bipartisan deficit plan by a so-called “Gang of Six” US senators, describing it as “very significant step”.
“We’re in the 11th hour and we don’t have a lot more time left,” said Obama, adding that it was time for congressional leaders to “start talking turkey”. The US Treasury says it will hit the $14.3 trillion debt ceiling on August 2. Obama wants Congress to raise it to $16.8 trillion.
Obama’s comments were something “the market could hang onto,” says James Steel, precious metals analyst at HSBC.
“The [gold] market had gotten very long and it did begin to steady out over $1600…we haven’t seen heavy fresh selling.”
Few details of the “Gang of Six” plan have emerged so far. News agency Reuters reported on Wednesday that the senators envision $3.75 trillion of savings spread over 10 years. By comparison, the Congressional Budget Office has forecast the total deficit for 2011 will be around $1.5 trillion.
The Republican-controlled House on Representatives meantime passed the so-called Cut, Cap and Balance Act on Tuesday – which calls for balanced federal budgets to be enshrined in the US Constitution before the debt ceiling can be raised.
The bill is expected to fail in the Senate, and Obama has said he would not sign it into law.
“We hope the US government will take responsible policies and measures to boost global financial market confidence and respect and protect the interests of investors,” said a statement from China’s State Administration of Foreign Exchange on Wednesday.
SAFE also played down the extent to which it might buy gold and other commodities with some of its $3.2 trillion of foreign exchange reserves – repeating its line that doing so would hurt Chinese consumers.
“Chinese companies and households consume a large amount of gold and crude oil…we could push up market prices, which may affect our people’s consumption and economic development.”
Here in Europe meantime, German chancellor Angela Merkel said Tuesday that this week’s emergency European Union summit on Greece will not be “one spectacular event which solves everything.”
Eurozone ministers are due to meet in Brussels on Thursday to discuss options for second Greek rescue – following last year’s €110 billion bailout.
One option under consideration involves using the European Financial Stability Facility – the Eurozone’s €440 billion temporary bailout mechanism – to buy back sovereign bonds on the open market.
“Much uncertainty remains ahead of the European Union leaders’ summit,” says Andrey Kryuchenkov, London-based analyst at VTB Capital, who adds that persistent uncertainty is likely to keep the market to buy gold “underpinned”.
“Any correction is unlikely to be extended for long.”
“It seems unlikely that any real resolution can be found to this issue on this occasion,” adds one gold bullion dealer here in London.
“The prospect is there for more buying of gold by risk-averse European investors.”
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 18 July, 08:00 EDT
Gold Leaps above $1600, US and Eurozone Appear No Closer to Solving Debt Problems
THE SPOT MARKET gold price surged to $1602 per ounce Monday morning in London – a new intraday record – while stocks and commodities fell as politicians on both sides of the Atlantic appeared no closer to resolving their respective debt problems.
Silver prices also jumped, up to $40.38 per ounce – 2.8% higher from Friday’s close.
The gold price also set new records in Euros and Sterling at Monday morning’s London Fix.
With the Dollar price set at $1598.25 per ounce, Euro and Sterling gold prices were €1136.33 per ounce and £992.82 respectively.
“The market has been very firm for precious metals this morning. Silver led the charge and gold followed steadily,” says one bullion dealer in Hong Kong.
“Gold prices have hit fresh highs across several currencies on macro unease, the Dollar weakening and the escalation of European sovereign debt uncertainty,” adds a research note from Barclays Capital.
US President Obama is due to continue discussions with leading members of Congress on Monday in an effort to find a solution to the ongoing debt ceiling issue.
Republicans want measures to reduce the federal deficit in return for voting to increase the $14.3 trillion borrowing limit – which the US Treasury says it will hit on August 2.
“[The Democrats] are never willing to be specific about the reductions in spending that they would be willing to do,” said Republican senator Jon Kyl on Sunday.
Republicans have proposed a “cut, cap and balance” plan – which would involve a constitutional amendment requiring the US government to balance its budget each year.
Republican congressman John Boehner, speaker of the House, described the proposal Friday as “a solid plan for moving forward”.
Some economists, however, fear that such an amendment could exacerbate future recessions – since falling tax revenues would have to be offset by spending cuts.
“It’s exactly the opposite of what intelligent fiscal policy should do,” Dan Seiver, professor of finance at San Diego State University told Reuters.
Should the balanced budget proposal not pass Congress, a possible “Plan B” revolves around Republican Senator Mitch McConnell’s suggestion that Congress simply be allowed to vote against raising the debt ceiling.
Obama could then veto their decision, which would require a two-thirds majority in Congress to overturn.
“If we’re unable to get an agreement [McConnell's idea] might look pretty good a couple of weeks from now,” said Boehner.
Data published Friday revealed US consumer confidence at its lowest level since March 2009.
Over in Europe, German chancellor Angela Merkel said Sunday she will only attend Greek bailout talks in Brussels “if there is a result.”
Merkel reiterated Germany’s desire to see private creditors share the burden of any rescue, telling German television that the greater the private sector contribution, “the less likely it will be that further steps are needed.”
However, European Central Bank president Jean-Claude Trichet repeated the ECB’s position on defaulted sovereign bonds in Monday’s Financial Times Deutschland.
“If a country defaults, we will no longer be able to accept its defaulted government bonds as normal eligible collateral.”
The European Banking Authority published the results of stress tests on Friday, showing that 8 out of 90 banks had insufficient capital to cope with given potential crises – with the aggregate shortfall estimated at €2.5 billion.
One bank, Germany’s Helaba, pulled out of the tests last Wednesday.
The tests have been criticized for not considering the impact of a Greek sovereign default.
“This move in gold still has momentum, as Europe is burning to the ground,” one US based trader told Reuters.
Over in New York meantime figures from the Commodities Futures Trading Commission for the week ended July 12 show a 26% rise in the net long position of so-called speculative gold futures and options traders on the COMEX – institutional traders defined as non-commercial. The net long figure is a measure of how bullish futures traders are on aggregate.
Speculative long positions in gold futures and options rose to the equivalent of 878.4 tonnes – the highest level in ten weeks, but only 2% above the average over the last 12 months – while speculative short positions climbed to 143.7 tonnes.
“We would beware of the continuing build-up of speculative short positions,” warns Marc Ground, commodities strategist at Standard Bank.
“[These are] way above last year’s average…indicating a market that is less supportive – which could see the gold price more vulnerable to shifts in investor sentiment.”
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 11 July, 08:30 EDT
Gold Hits New Euro, Sterling Records as Eurozone Emergency Meeting Discusses Italy’s “Unsustainable” Debt
THE U.S. DOLLAR gold price climbed to $1550 per ounce just after midday in London – up 4.2% from the beginning of last week – while stocks and commodities plunged and US Treasury bonds rose after the president of the European Council called a crisis meeting to discuss Italy’s sovereign debt.
The Euro gold price hit a new record of €1092.12 per ounce at Monday morning’s London Fix – a 1.5% jump from Friday afternoon’s fix.
The Sterling gold price meantime came in at £966.32 per ounce – a 0.7% gain from last Friday, and also a new record.
The silver price meantime jumped to $36.65 per ounce – down four cents from last Friday’s spot market close.
“Italy cannot afford to pay the interest rates it’s paying right now,” adds Andrew Bosomworth, fund manager at PIMCO, the world’s largest bond fund, adding that Italy’s debt will be “unsustainable” if interest rates remain at current levels.
“As yields rise and debt financing costs become even more exaggerated, the difficulties of containing the crisis become greater,” says Jane Foley, senior foreign exchange strategist at Rabobank.
Yields on Italian government bonds rose to 5.4% on Monday – up from just over 4% this time last year.
Italy’s stock market meantime fell sharply on Friday – with shares in its largest bank, UniCredit, down 7.8%.
Herman Van Rompuy, president of the European Council, called an emergency meeting Monday for officials dealing with the ongoing Eurozone debt crisis.
Among those invited to the meeting were Jean-Claude Trichet, president of the European Central Bank and Jean-Claude Juncker, chairman of the group of Eurozone finance ministers.
The Eurozone may have to double the size of its bailout fund – the European Financial Stability Facility – to €1.5 trillion to cover a potential crisis in Italy, according to German Die Welt, citing unnamed ECB officials.
Also in Brussels, European leaders are for the first time contemplating a Greek default, according to a report in Sunday’s Financial Times.
Options under consideration reportedly include lower interest rates on bailout funds and a program of buying back Greek government bonds.
“The basic goal is to reduce the debt burden of Greece,” the FT quotes a senior European official involved in negotiations.
Eurozone leaders are contemplating a selective Greek default “to save ammunition for later” says one gold bullion dealer here in London – referring to the potential crisis in Italy, the third largest economy in the single currency.
“The Eurozone sovereign debt crisis has the potential to generate major financial stresses should it end in sovereign default,” says a new report from research consultancy Oxford Economics, entitled The Impact of Inflation and Deflation on the Case for Gold.
The consultancy’s analysis predicts that the gold price should “perform especially strongly in more extreme economic scenarios featuring high inflation, a weak Dollar and elevated financial stress.”
The researchers also find that gold performs well in their deflation scenario.
“Large [gold] price swings aren’t to be ruled out due to the illiquidity of the summer holidays,” cautions Swiss precious metals refiner MKS.
“We would beware of the build-up of speculative short positions…[which are]well above last year’s average,” says Marc Ground, commodities strategist at Standard Bank.
“[This indicates]a market that is less supportive — which could see the gold price more vulnerable to shifts in investor sentiment.”
In New York meantime noncommercial “speculative” investors decreased their net long exposure to gold futures and options contracts – narrowing the gap between bullish and bearish positions – according to the latest data from the Commodities Futures Trading Commission.
Noncommercial investors increased their short futures and options positions by the equivalent of 5.7 tonnes of gold bullion.
Over in China – the world’s second largest gold market – consumer price inflation rose to 6.4% in June, up from 5.5% in May.
“The higher the reading in June, the better the chance for it to peak,” reckons Ting Lu, economist at Bank of America Merrill Lynch in Hong Kong.
Pork prices were the major driver behind inflation growth – rising 57.1% in the year to June.
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.
