London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 3 April 2012, 08:00 EDT
WHOLESALE MARKET prices to buy gold dropped to $1672 an ounce Tuesday lunchtime in London – a 0.7% fall from the previous day’s high – while stocks and commodities traded lower and US Treasury bond prices rose ahead of the release of the latest Federal Reserve policy meeting minutes.
Prices to buy silver dipped to $32.77 per ounce – 1.5% off yesterday’s high – while the US Dollar Index, which measures the strength of the Dollar against other major currencies, remained close to four-week lows after falling yesterday.
Demand to buy gold on physical markets remained light, with Chinese markets closed until Thursday for Qingming festival and the Indian gold jewelers’ strike continuing into its third week.
“The absence of China…and a shorter week in Europe and the US for Easter break should theoretically result in little business for the remainder of the week,” says a note from Swiss refiners MKS.
“People are watching for signs of possible monetary policy moves in the United States, as well as the moves in the currency market,” adds Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
The Federal Reserve releases the minutes from last month’s Federal Open Market Committee meeting later today.
Signs of optimism in the minutes “might be seen as foreshadowing an upward revision to the Fed’s economic projections” says a note from Bank of America Merrill Lynch.
The Fed is next due to publish FOMC members’ economic projections on April 25. The last publication of such projections, on January 25, included for the first time policymakers’ expectations for interest rates over the next few years. Prices to buy gold jumped higher that day after the projections showed most FOMC members expected near-zero rates until at least late 2014.
“The gold market has been sensitive to monetary policy comments recently,” says HSBC precious metals analyst James Steel, adding that “current monetary policies…are ultra-accommodative and therefore gold-supportive”.
A month after the January 25 rally, gold fell sharply on February 29 after Fed chairman Ben Bernanke told Congress he expected higher oil prices would push up inflation – comments which were viewed as a potential hint towards policy tightening.
Last Monday, by contrast, gold rallied after Bernanke spoke of the need for “continued accommodative polices” to support the US labor market.
“We expect the US economy to surprise on the downside over coming months,” says a note today from Robin Bhar, head of metals research at Societe Generale.
“[This] should result in the implementation of QE3 [a third round of quantitative easing]…the markets remain concerned about the possibility of further QE/liquidity increases in Europe and the US, allied to negative real interest rates worldwide.”
European stock markets this morning gave back some of yesterday’s gains, though they remain comfortably ahead for 2012 so far – with the FTSE in London up 5% for the year while Germany’s DAX has gained around 20%.
“We’ve rarely seen a [stock] market that is so overbought as we see today,” warns Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
“Liquidity has driven the market and people have embraced risk, but for that to be sustained we need substantial improvement in the [European] economy. The hard data needs to follow in the second half of the year otherwise we risk a repeat of what happened last year when the [Eurozone debt] crisis resurfaced in the summer.”
The European Central Bank lent over €1 trillion to banks at its longer term refinancing operations in December and February. The ECB is due to announce its latest monetary policy decision tomorrow, with the Bank of England following on Thursday.
Over in the US meantime, the S&P 500 hit a new 4-year high Monday, while the Dow touched its highest level since December 2007, following the release of slightly better than expected US manufacturing data.
A New York bankruptcy judge meantime has given permission for an affiliate of securities and investment banking firm Jefferies Group to buy the remaining gold and silver assets from the trustees of failed brokerage MF Global.
Jefferies will buy warehouse certificates rather than actual physical silver and gold bars, with former MF Global customers expected to receive more than 99% of the current value of the gold futures contracts underlying those certificates.
Indian press reports that the strike by gold jewelers – which followed the government’s decision last month to double import duties on gold as well as impose a jewelry sales tax – turned violent Monday, with protesters fasting, disrupting trains and clashing with police.
India’s government meantime has permitted jewelry maker Titan Industries to import gold directly, rather than having to buy gold from a bullion bank or other authorized importing agency.
“We will allow anybody who is an actual user [of gold], but won’t allow anybody to import just for trading purpose,” explains India’s director general of foreign trade Anup Pujari.
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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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