London Gold Market Report
from Ben Traynor
BullionVault
Thursday 25 October 2012, 08:15 EDT
WHOLESALE gold bullion prices rallied to $1718 an ounce Thursday morning in London, less than 24 hours after dipping below the $1700 mark for the first time since the US Federal Reserve announced a third round of quantitative easing last month.
Gold in Sterling however ended the morning lower at £1068 per ounce, close to yesterday’s seven-week low, as the Pound rallied after the release of better-than-expected UK economic growth data.
Silver bullion meantime hovered around $32.20 an ounce, roughly in line with where it started the week, with other commodities also broadly flat.
“Lower prices now seem to be attracting new buyers [for gold],” says today’s Commodities Daily note from Commerzbank.
“India should come back to the market because Diwali is coming,” added a dealer of physical gold bullion in Singapore this morning, speaking to newswire Reuters.
“We should be expecting a big volume of sales or a last minute rush before the celebration.”
Here in the UK, the economy exited recession in the third quarter, growing by 1% in the three months to the end of September, according to the official preliminary GDP estimate published Thursday.
“In comparison to Q2, the latest quarter had one more working day and this will impact on the growth between the second and third quarters,” the Office for National Statistics said.
“In addition…the latest GDP estimate was affected by the Olympics and Paralympics events in the third quarter.”
“There’s now a good chance the economy won’t actually contract on average for this year,” says Scotiabank analyst Alan Clarke.
“It’ll probably be flat and in the context of monetary policy, it reinforces the case for the Bank of England to pause on QE.”
“The [Bank of England’s] Monetary Policy Committee will think long and hard before it decides whether or not to make further asset purchases,” Bank governor Mervyn King said in a speech on Tuesday.
“At this stage, it is difficult to know whether some of the recent more positive [economic] signs will persist…but should those signs fade, the MPC does stand ready to inject more money into the economy.”
King added however that “the Bank could not countenance any suggestion that we cancel our holdings of [UK government] gilts”, an idea that Financial Services Authority chairman Adair Turner, a candidate to replace King next year, is reported to favor.
The Bank’s current £375 billion asset purchase program is due to end next month.
The UK Statistics Authority meantime has said it will investigate whether any laws were breached when prime minister David Cameron, who received the latest GDP figures 24 hours before their release, told Parliament yesterday that “the good news will keep coming”.
Over in the US, the Federal Open Market Committee “will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month,” last night’s FOMC statement said, “[in order to] support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate [of maximum employment and stable prices].”
The central banks of Brazil and Ukraine between them added just over 2 tonnes of gold bullion to their reserves last month, according to International Monetary Fund data published Thursday. This is the first reported gold buying by Brazil in four years.
Russia, Belarus and Kazakhstan, all three of which have added to gold reserves earlier in the year, made sales last month totaling just over four tonnes, the IMF says, while Venezuela, which repatriated most of its foreign-held gold last year, sold 3.7 tonnes.
Spot gold ended September up nearly 5%, in a month that saw Fed and European Central Bank both commit to open-ended asset purchases.
Germany’s Bundesbank meantime withdrew two-thirds of its gold held in London over a decade ago when the Euro was launched, according to the Telegraph’s Ambrose Evans-Pritchard, citing a confidential report compiled this week by German auditors.
Earlier this week it was reported that the Bundesbank is planning to ship gold back to Germany for inspection from the New York Fed, after federal auditors said it should regularly inspect its foreign-held gold bullion.
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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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