London Gold Market Report
from Ben Traynor
BullionVault
Wednesday May 2012, 08:30 EDT
THE SPOT MARKET gold price rallied to $1658 an ounce ahead of Wednesday’s US trading, following the release of disappointing US jobs data – though gold in Dollars remained down on the week so far.
The ADP National Employment Report shows the US economy added 119,000 nonagricultural private sector jobs in April – less than many analysts had forecast. The ADP report is closely watched as a precursor to the official nonfarm payrolls report, which is out this Friday.
Federal Reserve chairman Ben Bernanke said last week that the US needs to add between 150,000 and 200,000 jobs each month to meet Fed projections.
Earlier in the day, gold dipped back below $1650 per ounce during Wednesday morning’s London trading – 1.23% down on yesterday’s high – while European stock markets were mixed and the Euro fell following the release of disappointing economic data.
London’s FTSE lost 0.6% by lunchtime, while French and German stock markets were up following yesterday’s May 1 absence. Commodity prices ticked lower, with copper down nearly 1.3% on the day.
The silver price meantime fell to $30.59 per ounce – 2.2% down on the week so far.
“[Silver’s] inability to bounce above $31.50 remains a concern for longer term bulls,” says technical strategist Russell Browne at bullion bank Scotia Mocatta.
On the currency markets, the Dollar this morning extended the rally that it began on Tuesday shortly after the publication of better-than-expected manufacturing data.
“Growth is more anemic than any of us would want,” said Federal Reserve Bank of Dallas president Richard Fisher last night.
“But it’s positive.”
Fisher added that he would not support further monetary stimulus such as quantitative easing “unless truly horrific data were to come forward”, although the Dallas Fed president is not due to become a voting member of the Federal Open Market Committee until 2014.
Fisher added that Congress now has “to do their part; we’ve done ours”.
“[The] central scenario is now for further Fed monetary accommodation to be implemented only in the fourth quarter instead of June,” said a note from French bank BNP Paribas this morning.
BNP has cut its average gold price forecast for 2012 from $1855 per ounce to $1715, and its silver price forecast from $37.50 to $33.10.
Fisher’s comments meantime echo those of European Central Bank Executive Board member Joerg Asmussen, who said last month that “Europe has done its part” in fighting the sovereign debt crisis, and that the onus was now on the International Monetary Fund.
ECB president Mario Draghi meantime called for a “growth compact” last week when he appeared at a European Parliament hearing, though he added that fiscal austerity measures are “unavoidable”.
“The only answer to this,” said Draghi, “is to persevere and for the ECB to create an environment that is as favorable for this as possible.”
Eurozone manufacturing activity continued to fall last month – and at a faster rate – according to official purchasing managers’ index data published this morning.
The Eurozone-wide manufacturing PMI fell from 46.0 in March to 45.9 for April.
The Eurozone’s unemployment rate meantime hit its highest level in nearly 15 years in March – rising to 10.9% – according to data published Wednesday by Eurostat, the European Union’s official statistics agency.
German manufacturing activity also contracted last month, with April’s PMI falling to 46.2, down from 48.4 in March.
German unemployment meantime grew by 19,000 last month to hit 6.8%, in line with March’s figure, which was adjusted higher from 6.7%.
The Euro dropped sharply against the Dollar this morning, and by Wednesday lunchtime was down 1.2% on yesterday’s high. Against the Pound, the Euro fell to its lowest level since June 2010.
The Euro gold price meantime hit a two-week high, breaking through €40,500 per kilo (€1260 per ounce).
The ECB should lend money to the European Stability Mechanism, the permanent bailout fund that
Here in the UK, Bank of England figures released Wednesday show M4 money supply grew by £8.2 billion in March, excluding money held by institutions the Bank classifies as ‘intermediate other financial corporations’ i.e. companies that facilitate transactions between banks such as clearing counterparties.
Of this, the ‘household sector’ portion of M4 rose by £2.8 billion, while ‘private non-financial corporations’ saw a decline in money holdings of £1.4 billion.
The bulk of M4 growth was accounted for by ‘non-intermediate other financial corporations’ – which include insurance companies and pension funds. These saw their M4 holdings grow by £6.8 billion in March.
M4 excluding intermediate OFCs saw year-on-year growth of 6.4% in the first quarter of the year, although M4 lending fell by 0.3%.
“Severe credit tightening would drag the economy back into a deep recession,” say economists at Moody’s Analytics.
“Further quantitative easing by the Bank of England is unlikely to be announced at the May monetary policy meeting, but future action will not be ruled out.”
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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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