London Gold Market Report
from Adrian Ash
BullionVault
Thurs 12 April, 08:35 EST
INVESTORS looking to buy gold saw prices fall alongside the US Dollar in London trade Thursday morning, dropping $8 per ounce to $1652 and falling harder in other currencies as commodities also edged lower.
Silver prices slipped back to $31.45 an ounce, losing 1.1% for the week so far vs. the Dollar.
Eurozone investors wanting to buy gold saw the price drop 1.2% from Tuesday’s late one-month high of €1271 per ounce (€40,868 per kilo) as the single currency rallied on the forex market.
Italy today sold almost €5 billion in new government bonds, with investors demanding a whole percentage point more in annual interest on 3-year debt at 3.9% than they did at a sale in mid-March.
“Gold is struggling, weighed down by…faltering investor interest,” says Standard Bank’s commodity team in a note.
“Physical demand on the other hand has been supportive, with particularly strong buying coming out of the Far East on price dips.”
A late rally in Asian shares Thursday was attributed by newswire reports to rumors that Hong Kong banks will be able to lend directly to businesses in the Shenzen Special Economic Zone.
Data out this morning said new Chinese bank lending rose sharply above analyst forecasts in March at CNY 1.01 billion ($160bn). Growth in private-sector bank account holdings also accelerated, growing by 13.4% from March 2011.
“Chinese monetary easing looks to have already taken place,” says Standard Bank, and “The latest Chinese foreign exchange reserves data [also] showed a much stronger-than-expected increase in March.
“Reserve accumulation and continued low real interest rates underscores our long-term bullish outlook for gold.”
Two days after the International Monetary Fund said it was cutting its long-term forecast for China’s trade surplus – “the analytical underpinning for the case that the Renminbi is substantially undervalued” according to former IMF official Eswar Prasad – the World Bank today trimmed its forecast for China’s GDP growth in 2012.
Down from 8.4% to 8.2%, that would be the slowest pace in 13 years. China’s trade surplus almost halved in 2011 to 2.7%.
China’s private demand to buy gold in 2011 accounted for more than 0.6% of GDP on Bullion Vault’s analysis, with imports accounting for over half of that.
“Gold [in 2011] was clearly dependent on emerging markets’ economic strength, as China’s jewelry demand grew to a record level while India’s fell by less than 3%,” said GFMS executive chairman Philip Klapwijk on Wednesday, launching the consultancy’s new Gold Survey 2012.
Rising incomes in both China and India mean “We see significant potential for new entrants” to the gold market, said Klapwijk, with banks expanding access to physical product in-branch, and private-sector operators also expanding “distribution to retail investors.”
Ahead of US trade and producer-price data on Thursday, Australia reported a sharp jump in consumer expectations for inflation to 3.3%, while unemployment held flat at 5.2% last month.
The UK trade deficit yawned to £8.7 billion in February, while Eurozone industrial production contracted as analysts forecast, down 1.8% from Feb. 2011.
“I consider a highly accommodative policy stance to be appropriate in present circumstances,” said Janet Yellen, vice-chair of the US Federal Reserve Board of Governors, in a speech on Wednesday.
“But…further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace,” said Yellen – the Fed’s #2 to chairman Ben Bernanke – adding that only “a significant acceleration in the pace of recovery” would bring forward any tightening of current policy.
The Bank of Japan “must not waver” but expand its balancesheet “aggressively” to fight deflation, says Frederic Neumann, co-head of HSBC bank’s Asian economics team, writing in the Financial Times.
To avoid a “lost decade”, Europe should meantime set up a Special Purpose Vehicle, separate from the individual member states, to hold Eurozone government debt bought with €2-3 trillion created through the European Central Bank says financier and hedge-fund manager George Soros, also writing in the Financial Times today.
“In the long run,” said GFMS chairman Klapwijk at Wednesday’s event in London’s Canary Wharf, “the current level of gold investment demand is not sustainable. But it can be sustained [in the meantime] by central-bank policy.
“Negative real rates of interest and quantitative easing can only be good for gold,” he explained, forecasting a continuation of US and UK policy in 2012, plus further relaxation in Europe.
Whether in North America, Europe or emerging Asia, people are choosing to buy gold “as a form of protection against debt monetization and inflation,” he said.
The Singapore Mercantile Exchange said Thursday will launch new silver and gold futures contracts in May, “providing an alternate [Asian] market because China and India are closed” to cross-border flows according to SMX chief executive Vaidyalingam Hariharan, speaking to Reuters.
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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
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