London Gold Market Report
from Ben Traynor
BullionVault
Friday 31 August 2012, 07:15 EDT
WHOLESALE prices to buy gold bullion hovered close to $1660 an ounce Friday morning in London, around ten Dollars below where they started the week, while stock markets gained and US Treasuries sold off, ahead of today’s much-anticipated speech by Federal Reserve chairman Ben Bernanke and Monday’s Labor Day holiday in the US.
Silver bullion rose to $30.67 per ounce, slightly below last week’s close, while other commodities were also broadly flat.
Based on London gold fix prices, Dollar gold bullion prices looked set for a third straight monthly gain by Friday lunchtime in London, trading around 2.3% higher than the final July fix price.
The gold price in Sterling looked set for a 1% monthly gain. Gold in Euros by contrast was trading slightly below where it ended last month, dropping to €42,358 per kilo (€1317 per ounce) during Friday morning’s trading.
“For now, we have a bit of a cautious approach to the gold market,” says Credit Suisse analyst Tobias Merath.
“Expectations for more [Fed] monetary easing would have to be fulfilled to break higher here.”
Bernanke is due to speak later today at the annual Jackson Hole conference of central bankers.
“We believe that Bernanke will avoid sending a clear signal about Fed intentions for the September meeting,” says a note from Barclays, referring to next month’s Federal Open Market Committee meeting.
“The market’s disappointment could have a modest negative effect on risk appetite in coming days.”
“This is a speech, not an FOMC meeting,” adds Michael Feroli, chief US economist at JPMorgan.
“We do not think Bernanke is inclined to front-run the Committee less than two weeks ahead of the next meeting.”
Indian gold bullion importers were waiting for further falls in the gold price Friday, according to a report from newswire Reuters.
“There’s not much sale of gold scraps,” adds one dealer in Hong Kong.
Here in Europe, the European Commission has proposed that the European Central Bank be given supervisory authority over all Eurozone banks, removing such powers from many national bodies, the Financial Times reports.
Also writing in the FT, German finance minister Wolfgang Schaeuble counters that a supervisory body should only focus on those larger banks that “pose a systemic risk at a European level”.
“This is not just in line with the tested principle of subsidiarity,” writes Schaeuble.
“It is also common sense; we cannot expect a European watchdog to supervise directly all of the region’s lenders – 6000 in the Eurozone alone – effectively.”
Schaeuble adds that Europe “must eschew yesterday’s light-touch approach for good and endow this supervisor with real and clearly defined responsibilities, coercive powers and adequate resources.”
Germany has said the creation of a single Eurozone banking supervisor is a pre-requisite before Eurozone bailout funds can be loaned directly to banks. Currently, any government borrowing money to support its nation’s banking sector must take that borrowing onto its own books, raising its national debt-to-GDP ratio.
In June, Spain agreed a €100 billion credit line to fund the restructuring of its banking sector. Despite this, Madrid is considering using its own money to support the country’s biggest lender Bankia rather than use European Union money, in order to avoid forcing bondholders to take losses, news agency Bloomberg reports.
Eurozone inflation rose to 2.6% this month – up from 2.4% in July – according to data published Friday, while unemployment in the single currency area remained at 11.3%.
German Bundesbank chief Jens Weidmann has on several occasions considered resigning over ECB plans to intervene in sovereign bond markets as it went against the central bank’s policy of not financing governments, according to a report in Friday’s edition of tabloid Bild. Weidmann has however agreed to stay on the urging of the German government, the report says.
“Opposition [to ECB bond buying] from Weidmann and reservations from some other [ECB Governing] Council members will mean that ECB bond purchases would be highly conditional,” says Holger Schmieding, economist at Berenberg Bank.
“[It would] be focused on the short end and would not aim to bring yields down quite as much as Italy and Spain might like to see.”
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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. Ben writes and presents BullionVault’s weekly gold market summary on YouTube and can be found on Google+
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