London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 8 May 2012, 07:45 EDT
WHOLESALE MARKET gold prices fell to $1625 an ounce during Tuesday morning’s London trading – their lowest level in over a fortnight – as stocks and commodities also ticked lower and the Dollar extended recent gains, with markets still digesting the weekend’s French and Greek election results.
“Support [for gold] is at $1625, where we have seen very good support since early April,” says the latest technical analysis from bullion bank Scotia Mocatta.
Silver prices meantime fell to $29.55 per ounce – their lowest level since mid-January.
A day earlier, gold prices traded lower on Monday, while the Euro fell to a 3-month low against the Dollar.
“It is a much more hazardous [gold] environment at the moment because of the downside risks to Euro/Dollar,” says Michael Lewis, chief commodity strategist at Deutsche Bank.
“One of the supportive factors [is] we’ve already seen quite a dramatic scaling-back in speculative length in gold over the last few months, so that might reduce the positioning risk for the market, but it is definitely going to be an environment where gold is going to struggle.”
In New York, the difference between bullish and bearish gold futures and options contracts held by noncommercial traders on the Comex – the so-called speculative net long – rose 5.7% in the week ended last Tuesday, according to data from the Commodity Futures Trading Commission.
“Despite the improvement, net speculative length remains relatively weak…signaling a continued lack of confidence,” says Standard Bank commodities strategist Marc Ground.
“While investors are not overtly bullish, short positioning is also relatively low, a mildly encouraging sign that investors appear cautious of running too short.”
“Gold eased on Monday,” adds a note from Swiss precious metals group MKS, “after French and Greek elections that reflected strong anti-austerity feelings raised concerns over European ability to battle its debt crisis, knocking [the Euro] down.”
Newly-elected French president Francois Hollande is due to visit Berlin one week from today, where German chancellor Angela Merkel says she will welcome him “with open arms”, according to press reports.
Merkel added however that there will be no renegotiation of reform measures such as the Fiscal Stability Treaty, which aims to reduce Eurozone government debt-to-GDP ratios.
During his campaign, Hollande said that is “is not for Germany to decide for the rest of Europe”, and called for pro-growth policies as well as a change in the rules governing interventions by the European Central Bank.
Europe needs “to strike a balance” between austerity and growth said Olli Rehn, European Commissioner for economic and monetary affairs, said in a speech on Saturday, ahead of the French election result.
“We need to further boost investment to supplement the other policies of our growth agenda,” he said.
Rehn added that the European Investment Bank – which makes loans to businesses on behalf of the European Union – should have its capital increased.
“Countries need to keep a steady hand on the wheel,” said International Monetary Fund managing director Christine Lagarde Monday.
“If growth is worse than expected, they should stick to announced fiscal measures, rather than announced fiscal targets…in other words, they should not fight any fall in tax revenues or rise in spending caused solely because the economy weakens.”
Greece meantime faces the prospect of fresh elections after Sunday’s poll failed to deliver a majority for the incumbent coalition, made up of the New Democracy party and Pasok, both of which publicly support the EU/IMF bailout deal.
Former Greek finance minister Evangelos Venizelos has said the terms of Greece’s bailout should be renegotiated, and spending cuts spread over three years rather than two.
Over in Spain, the government is reportedly preparing to bail out Bankia, the banking group created at the end of 2010 by the merger of seven smaller banks which were struggling with bad property loans. One Spanish newspaper reports the bailout could be around €7 billion – on top of the €4.5 billion Bankia received from the government shortly after it was set up.
India’s finance minister Pranab Mukherjee announced Monday that the government is withdrawing the 1% excise duty on all precious metal jewelry, branded or unbranded. The withdrawal is effective from March 17 – the day after Mukherjee’s Union Budget in which he extended the tax to unbranded jewelry.
Many Indian gold dealers closed down for three weeks in protest following the Budget, which also saw import duties on gold doubled – a policy that remains in place.
“People who were on the sidelines will come back to the market,” says Prithviraj Kothari, president of the Bombay Bullion Association.
“Jewelry demand will improve in the coming weeks…it’s a good move by the government.”
In China, imports of gold bullion from Hong Kong – widely regarded as a proxy for overall Chinese gold imports – rose 59% month-on-month in March to nearly 63 tonnes, according to official Hong Kong government data.
The volume of gold heading the other way, however, also rose to just under 25 tonnes, leaving net exports at a little over 38 tonnes.
“Rising prosperity levels among the population coupled with tighter laws governing property speculation are likely to contribute to sustained high demand for gold in China,” says a note from Commerzbank.
“Above all, Chinese gold demand should lend key support to the price of gold during the course of the year.”
“China’s strong demand for bullion may help support gold prices at lower levels,” adds James Steel, commodity analyst at HSBC in New York.
“A recovery in Indian gold demand should [also] be an important factor in support of gold prices.”
At the annual Berkshire Hathaway shareholders’ meeting, attended this year by U2 frontman Bono, legendary investor Warren Buffett repeated his regular advice not to buy gold – a sentiment echoed by his number two Charlie Munger and Microsoft founder Bill Gates.
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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
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.
