London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 26 June 2012, 07:45 EDT
SPOT MARKET prices to buy gold traded just above $1580 an ounce throughout Tuesday morning’s London session, up around 0.6% on last week’s close following gains the previous day.
Prices to buy silver traded in a tight range around $27.50 an ounce – 2.1% up on the week so far.
“After last week’s bearish price action it is hard to get excited about a sustained rally [for gold],” says the latest note from technical analysts at bullion bank Scotia Mocatta.
“In our opinion,” adds Commerzbank senior technical analyst Axel Rudolph, “gold has resumed its downtrend…we will retain this negative forecast while the gold price trades below the current June high at $1641.”
European stock markets meantime edged slightly higher by lunchtime in London – following losses the previous day – while commodities were broadly flat and US Treasury bonds fell, as markets continued to focus on upcoming policy discussions in Europe.
On the currency markets, the Euro struggled to stay above $1.25 this morning, having fallen from one-month highs last week.
“If the US Dollar remains strong, then gold may easily move down a little bit,” says one bullion dealer in Hong Kong.
“Sentiment in general is a bit mixed. If you have less money in your pocket, why should you buy gold? The only thing that people are buying for the time being is the US Dollar.”
The European Council – which according to its website “defines the general political direction and priorities of the European Union” – has called for “greater pooling of decision making on budgets” across the Eurozone, ahead of the EU summit which starts this Thursday and concludes Friday.
“A fully-fledged fiscal union,” it says in a report issued Monday, “would [ultimately] imply…the development at the Euro area level of a fiscal body, such as a treasury office.”
The report, which is expected to form the basis for discussions at this week’s summit, outlines “four essential building blocks” for greater European integration. As well as integrated budget setting, it calls for an “integrated financial framework” – including cross-border deposit insurance and bank resolution schemes – an “integrated economic policy framework” and stronger “democratic legitimacy and accountability”.
The report also suggests the issuance of common debt instruments such as so-called Eurobonds “could be explored…in a medium term perspective”.
“Steps towards the introduction of joint and several sovereign liabilities could be considered,” the report says, “as long as a robust framework for budgetary discipline and competitiveness is in place.”
German chancellor Angela Merkel yesterday described Eurobonds as “economically wrong and counterproductive”.
“There is now a growing suspicion that Germany is simply not ready to accept the level of debt mutualization necessary to restore confidence and keep the single currency project alive,” says Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London-based consultancy specializing in sovereign credit risk.
Cyprus became the fifth Eurozone nation to apply for a bailout Monday, following a decision by ratings agency Fitch to cut the country’s credit rating to junk status. The Cypriot government aims to contain “spillover effects” from the Greek economy, to which Cypriot banks have “large exposure”, an official statement said.
Over in Athens, Greece’s new finance minister Vassilios Rapanos has resigned four days into his appointment, after he collapsed and was hospitalized Friday.
Ratings agency Moody’s meantime has downgraded 28 Spanish banks, including Santander, following its decision earlier this month to cut Spain’s sovereign rating to one notch above junk.
Over in India meantime, the Rupee continued to trade near all-time lows against the Dollar on Tuesday, despite moves a day earlier by the Reserve Bank of India aimed at boosting capital inflows, such as raising the limit for the amount of government bonds foreign investors can hold.
“These are just stop-gap arrangement,” says Sonal Varma, economist at Nomura in Mumbai.
“What has the government done to reduce the fiscal deficit and curb the current-account deficit?”
“The major issues in India,” adds Benoit Anne, managing director at Societe Generale in London, are the question marks about growth in the context of China being heavily scrutinized on the same topic, as well as the credibility of economic and financial policies.”
Raising the amount of Indian government bonds foreigners can hold “is not a guarantee that foreign investors will rush in,” Anne adds, “especially if the fundamental problems have not been addressed.”
Rupee prices to buy gold have hit a series of record highs this month, as the Indian currency has fallen against the Dollar.
“For the past two to three months, there has been virtually no gold buying in India,” says Krishna Kumar Nathani, managing director of Chennai-based consultancy Indiabullion.com.
“But if international prices were to retreat and the Dollar-Rupee holds at current levels, then I expect demand to pick up again.”
“If we have good monsoon rains,” adds Bombay Bullion Association President Prithviraj Kothari, “then gold demand could be anywhere between 750 and 800 metric tonnes this year.”
India was the world’s biggest gold buyer in 2011, with total Gold Bullion demand totaling 933.4 tonnes according to World Gold Council data. Gold demand in the first quarter of 2012 however was 207.6 tonnes, down 29% on the same period last year, with China overtaking India as the world number one for the second quarter running.
Ben Traynor
BullionVault
Gold value calculator | Buy gold online at live prices
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.
Tradervox (Dublin) – Despite the dampening effect of the EU summit expectations, the Canadian currency managed to shoot for a while from two-week low after an advance by equities around the world advanced. The Canadian dollar started the week on a low on speculations the EU summit will not resolve the crisis in Europe which dampened demand for commodity related currencies. The demand for safe haven has continued to gain traction in the market but yesterday equity gain spurred some appetite for risk. Blake Jespersen of Bank of Montreal noted that the loonie is bound at half a cent range for this week.
Tradervox (Dublin) – Most economists have dismissed the EU Summit scheduled to start on Thursday claiming the meeting will not push Europe towards crisis resolution. The yen has advanced against all of its 16 major counterparts as German Chancellor Angela Merkel and French President Francois Hollande meet today before the EU Economic Summit starts tomorrow. Yen rose to one week high as low expectation from the EU Summit gripped the market increasing the demand for safe haven assets. The euro has remained down against the greenback after declining since the start of the week.
