London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 9 May 2012, 08:00 EDT
SPOT MARKET gold bullion prices fell to their lowest level in four months during Wednesday morning’s London trading, hitting $1581 an ounce – 3.7% down on the week so far – while European stock markets and commodities also fell and US Treasuries gained, with Greek uncertainty continuing to cast a shadow.
A day earlier, gold fell below $1600 for the first time since early January.
“Gold seemed to know only one direction today – down,” says Tuesday’s note from Swiss precious metals group MKS.
“The bearish close opens up a full retracement to the December low of $1522,” adds the latest technical analysis from bullion bank Scotia Mocatta.
Silver bullion fell to $28.69 per ounce – also a four-month low, and 5.6% down on last week’s close.
On the currency markets, the Euro failed to regain $1.30, after falling back through that level yesterday having breached it on Monday for the first time since February.
Sterling meantime hit its highest level since August 2009 on a trade-weighted basis. The stronger Pound saw Sterling gold prices drop to £982 per ounce on Wednesday, their lowest level since last July.
On the New York Comex, open interest in gold futures trading rose to the equivalent of 1312.5 tonnes yesterday – up 2.4% on Tuesday last week – though it remains broadly in the middle of its range for the last five years.
It will not be known however what proportion of these positions were long and short until the Commodity Futures Trading Commission publishes its weekly Commitments of Traders report on Friday.
The volume of gold bullion held by the world’s biggest gold ETF, SPDR Gold Trust (GLD), remained unchanged Tuesday from a day earlier at just under 1275 tonnes.
GLD volumes did though spike higher yesterday, more than doubling from a day earlier to 17.8 million shares – although Monday’s volume was towards the lower end of the recent range.
The largest volume for GLD trading this year was 44 million on February 29, when gold fell $100 an ounce following Federal Reserve chairman Ben Bernanke’s appearance before Congress.
Alexis Tsipras , the leader of Greece’s left wing Syriza, which came second in Sunday’s election, will continue his efforts to form a government today, according to press reports.
The mandate to form a government passed to Tsipras after first-placed New Democracy was unable to form a coalition. The Syriza leader has outline a five-point plan which includes cancelling the terms of Greece’s bailout, suspending service payments on public debt, and investigating Greece’s banking sector.
“Voters [on Sunday] rejected the barbarous policies in the bailout deal,” said Tsipras Tuesday.
“They abandoned the parties that support it, effectively abolishing plans for [public sector] sackings and additional spending cuts…the popular verdict clearly renders the bailout deal invalid.”
Tsipras is today due to meet the leaders of New Democracy and third-placed Pasok – former coalition partners that backed Greece’s latest bailout and who both saw their shares of the vote fall on Sunday.
Many analysts, however, say they do not believe Tsipras will gain the agreements he needs to form a government.
“Mr. Tsipras asked me to put my signature to the destruction of Greece,” said New Democracy leader Antonis Samaras on Tuesday.
“I will not do this. The country cannot afford to play with fire.”
Should Tsipras fail to form a government, the mandate would pass to former Greek finance minister and Pasok leader Evangelos Venizelos.
“The Greek people asked for two things,” said Venizelos Tuesday.
“For Greece to stay safely in Europe and the Euro and at the same time to seek the best possible change in [bailout] terms so that citizens and growth can be helped.”
“Greece needs to be aware,” warned European Central Bank executive board member Joerg Asmussen Tuesday, “that there is no alternative to the agreed reform program if it wants to remain a member of the Eurozone.”
“A Greek return to the polls in mid-June looks increasingly likely,” says Malcolm Barr, London-based economist at JPMorgan Chase.
“There is little doubt that the drop in support for New Democracy and Pasok has raised the probability of an eventual Euro exit.”
“Greece in itself isn’t a big issue,” adds Adrian Cattley, European equity strategist at Citi.
“What does matter of course is the knock-on effects and contagion fears and what that would mean for the wider market.”
Here in the UK, prime minister David Cameron described the Euro as “a project in transition” in a newspaper interview published Wednesday.
“There’s nowhere in the world that has a single currency without having more of a single government,” said Cameron, although he added that “all these countries have to make their own choices” and that the Eurozone project “could go in a number of different ways”.
Spain’s government will tell the country’s banks to set aside an additional €35 billion as provision against loans made to the construction sector, newswire Reuters reports.
Ratings agency Moody’s meantime will begin cutting the credit ratings of over 100 banks this month, which could increase their funding costs and force them to reduce lending, according to Bloomberg.
China meantime has been buying oil from Iran and paying with Yuan and gold bullion, according to the Wall Street Journal.
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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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