London Gold Market Report
from Adrian Ash
BullionVault
Mon 8 Apr, 08:00 EST
The GOLD PRICE ticked lower against the US Dollar early Monday, but held onto the bulk
of Friday’s sharp rally at $1577 per ounce as world stock markets rose alongside commodities.
Silver bullion traded at $27.30 per ounce, some 2.5% above last week’s 9-month low, while
both Sterling and the Euro extended their gains versus the US currency, pushing the gold
price below £1030 and €1215 per ounce respectively.
Major-government bond prices eased back, but Portugal’s 10-year borrowing costs nudged up
to 6.40% after a court in Lisbon today rejected a plan to suspend state-salary and pension
payments for one month.
Prime minister Pedro Passos Coelho responded by vowing a new round of spending cuts as
he seeks to meet the terms of 2011’s bailout by Eurozone partners, the International Monetary
Fund and the European Central Bank worth €78 billion.
Head of the IMF Christine Lagarde today called the Bank of Japan’s new $1.4 trillion
program of quantitative easing “a welcome step”.
What one Japanese fund manager calls Tokyo’s “bazooka” has seen the Nikkei stock index
rise 9.9% over the last four sessions.
“[Gold] has disappointed the public,” says currency speculator and hedge-fund manager
George Soros, speaking to the South China Morning Post, “because it is meant to be the
ultimate safe haven.
“But when the Euro was close to collapsing in the last year…gold was destroyed as a safe
haven, proved to be unsafe…Gold is very volatile on a day-to-day basis [with] no trend on a
longer-term basis.”
Daily volatility in the US Dollar gold price has averaged less than 20% over the last 5 years.
The S&P stock-market index shows average volatility of 21%.
Soros called gold “the ultimate bubble” in February 2010. Rising 75% over the following 18
months, its price stands more than 43% higher today.
“There is still strong physical demand with the gold price below $1600,” says the latest
Commodities Quarterly from Standard Bank’s analysts, pointing to their Gold Physical Flow
index, which remains well above both the 2012 and four-year average levels for the year so
far.
Trimming their 2013 average forecast from $1720 per ounce to $1700, “We still view the two
dominant drivers for gold as real interest rates and global liquidity,” the Standard Bank team
go on, noting a near-2% rise in central bank reserves worldwide year on year.
“Our supply and demand forecast implies [a] tight [market] as well as a decline in supply in
the long term.”
Looking at the price charts, however, “Gold is still in a bearish trend,” says Friday’s note
from technical analysts at bullion bank Scotia Mocatta, “with support at the base of the
massive 18-month consolidation pattern, in the $1522 area.
“Should we break through, it will open up a move to the $1300 level.”
Looking at positioning by professional money-managers and speculators in gold
futures, “Much of the downside is already priced in,” reckons a note from Credit Suisse this
morning.
What analysts call the “net long” position of non-industry players in US gold derivatives was
little changed at the equivalent of 415 tonnes in the week-ending last Tuesday, new data from
US commodity futures regulators said late Friday.
That compares with a 5-year average of more than 700 tonnes equivalent, and is 60% smaller
than the peak hit in August 2011.
As a group, so-called “small speculators” – meaning mostly private traders rather than hedge
funds or other managed accounts – now hold fewer than 1.7 bullish contracts for every bet
they hold that the gold price will fall.
That compares to a 5-year average of 2.3 and a peak of 3.9 in September 2012.
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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market
for private investors online, where you can buy gold and silver in Zurich, Switzerland for just
0.5% commission.
(c) BullionVault 2013
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