London Gold Market Report
from Ben Traynor
BullionVault
Monday 9 July 2012, 07:30 EDT
U.S. DOLLAR gold prices held above $1580 an ounce Monday morning in London – broadly in line with last week’s close – while major European stock markets were broadly flat on the day, with the exception of Spain’s Ibex.
Gold prices ended down last week, falling back below $1600 on Friday, following the release of June’s US nonfarm payroll data, which showed the economy added 80,000 private sector jobs last month. Although this was lower than many analysts’ forecasts, it was higher than a month earlier. April and May’s nonfarms figures were revised higher, while unemployment held steady at 8.2%.
“[Last week was] the ninth consecutive week where gold has alternated between an ‘up’ or a ‘down’ week,” says the latest technical analysis note from bullion bank Scotia Mocatta.
“The market is trying to decide whether to continue the down move below $1500 or recover back above $1640 towards $1750.”
“The market is not sure where prices should go,” agrees Lynette Tan at Phillip Futures in Singapore.
“Sentiment is fragile.”
Silver prices meantime climbed as high as $27.39 this morning – 1% up on last week’s close . Other commodities also gained, as did major government bond prices, while on the currency markets, the Euro touched a new two-year low before regaining some ground by lunchtime.
In the US, “economic circumstances warrant extremely strong accommodation,” said Federal Reserve Bank of Chicago president Charles Evans in a speech on Monday.
“Additional monetary accommodation is need to more quickly boost output to its full potential level.”
Speaking at the same event in Bangkok, Boston Fed president Eric Rosengren meantime told reporters that it is “appropriate to have more quantitative easing” from the Federal Reserve.
Neither Evans nor Rosengren are voting members of the Federal Open Market Committee in 2012, though both become so next year.
Here in Europe, benchmark yields on Spanish 10-Year government bonds rose back above 7% this morning, following news that government tax receipts fell 1.5% in the first five months of 2012 – while state spending rose 12%.
“The state’s haste to increase tax receipts is generating uncertainty and that harms investment,” says Ramon Casero Barron of the Universidad Pontificia Comillas in Madrid, which last week published a study showing 73% of Spanish businesses surveyed say tax rules are impeding decisions to invest.
“It will probably get worse,” adds Rafael Panpillon, head of economic analysis at Madrid business school the Instituto Empresa.
“I don’t see companies generating more profits or families earning and spending more as unemployment grows and salaries become lower.”
By Monday lunchtime, Spain’s Ibex stock index was down 1% from where it closed on Friday.
Elsewhere in Europe, Greece’s new coalition government – comprising parties who have stated support for the country’s bailout – won a vote of confidence in the Greek parliament Monday.
France’s finance minister meantime has denied a report in German newspaper Der Spiegel that he and Germany’s Wolfgang Schaeuble are set to share chairmanship of the Eurogroup – the body of single currency finance ministers currently chaired by Luxembourg’s Jean-Claude Juncker, and which meets today in Brussels.
Japan recorded its smallest monthly current account surplus since at least 1985 in May, newswire Bloomberg reports.
Data published Sunday show that the surplus in Japan’s current account – which includes trade in goods and services – shrank by more than a third from a month earlier. Machinery orders fell 14.8% month-on month – the biggest monthly fall since 2001 – though they grew 1.0% on an annual basis.
Japan’s central bank “could ease policy further as early as September if it becomes clearer that the economy is slowing,” reckons Yasuo Yamamoto, senior economist at Tokyo’s Mizuho Research Institute.
Over in China – which in recent months has overtaken India as the world’s largest source of gold bullion demand – official inflation as measured by the consumer price index fell to 2.2% last month, down from 3.0% a month earlier, data published Monday show.
“Lower CPI opens room for further policy easing, which we expect will pick up,” says Nomura economist Zhang Zhiwei.
China’s central bank last week cut interest rates for the second month in a row.
Bank of America Merrill Lynch cut its gold forecast for 2012 Monday, having previously cut it in April. BAML analysts now project gold prices will average $1710 per ounce this year, with silver prices averaging $31.63. Based on London Fix data, gold prices have averaged $1649 per ounce so far in 2012, while the average Dollar silver price has been $30.93.
“Our long-term view on gold remains constructive,” adds Friday’s Commodities Daily note from Standard Bank.
“We forecast an average gold price of $1,780 and $1,850 for Q3:12 and Q4:12 respectively…we view the current weakness…as a short-term buying opportunity.”
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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.
(c) BullionVault 2011
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