London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 30 October 2012, 06:45 EDT
THE SPOT MARKET gold price traded just below $1715 an ounce during Tuesday morning’s London session, little changed from last week’s close, while European stock markets recovered their losses from a day earlier and UK and German government bond prices fell.
“Downside targets will be in focus while the gold price stays below the 17 October high at $1753.86,” says Commerzbank senior technical analyst Axel Rudolph.
The silver price climbed above $32 an ounce shortly after London opened, holding above that level for most of the morning, while other commodities were broadly flat.
Markets in the US are due to remain closed for the second day running as a result of Hurricane Sandy. Monday’s trading saw gold futures volumes “far below normal”, one analyst said, with another adding the market remained “pretty quiet” on Tuesday morning.
Press reports suggest that this Friday’s US nonfarm payroll report could be delayed as a result of the storm.
The Bank of Japan meantime increased the size of its quantitative easing program Tuesday for the second time in as many months, from ¥80 trillion to ¥91 trillion. Of the additional ¥11 trillion, ¥10 trillion will be used to buy government debt while the remaining ¥1 trillion will be put into riskier assets, with half being earmarked for exchange traded funds.
The Yen rallied nearly 1% against the Dollar immediately after the decision, while the Yen gold price fell by 1%.
“Most people had forecast and priced in further easing this time,” said Soichiro Monji, chief strategist at Daiwa SB Investments in Tokyo, shortly after the decision was announced.
“Investors are selling to lock in profit after the announcement, learning lessons from September, when a rally lasted for only a few hours.”
The BoJ “aims to achieve its goal of 1% [inflation]” said a statement issued jointly by the central bank’s governor and Japan’s finance and economy ministers.
“The government strongly expects the Bank to continue powerful easing,” it added.
“The question that inevitably arises,” says Neil Mellor, senior currency strategist at BNY Mellon, “is to what extent government pressure, and the presence of economy minister Maehara, influenced the decision?”
Here in Europe, Spain’s economy shrank by 1.6% year-on-year in the third quarter, the fifth successive quarter of contraction, according to official GDP figures published Tuesday.
Spain’s parliament is to invite European Central Bank president Mario Draghi to discuss the Outright Monetary Transactions program he announced last month, Reuters reports.
Under OMT, the ECB could buy sovereign debt on the open market conditional on the beneficiary country being in a bailout program.
A victory for Mitt Romney in next week’s US presidential election would be bad for the gold price, according to an article published by the Financial Times today.
“[Romney] would replace Ben Bernanke with a more hawkish chairman of the Federal Reserve when the latter’s term expires in January 2014,” the FT’s Jack Farchy writes.
“If that means a change in direction from the Fed’s current experimental and super-accommodative monetary policy, gold could suffer.”
“The Dollar might strengthen regardless of the election result,” says Matthew Turner, precious metals strategist at Mitsubishi.
“Political uncertainty would be reduced if there is a clear election victory.”
“Should Mitt Romney win, the attitude towards monetary measures is…likely to change ” says a note from gold bullion refiner Heraeus.
“In the short term [though] we still expect that [gold] falling below $1700 an ounce would fuel fresh purchases.”
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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+
(c) BullionVault 2012
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