London Gold Market Report
from Ben Traynor
BullionVault
Monday 13 August 2012, 06:30 EDT
U.S. DOLLAR gold bullion prices rose to $1625 an ounce during Monday morning’s London trading, towards the higher end of gold’s range over the last three months.
Silver bullion climbed to $28.18 an ounce – in line with last week’s close, after briefly dipping below $28.
Stock markets were broadly flat following news that Japan’s economic growth slowed sharply in the second quarter.
The cost of an ounce of gold bullion minus that of an ounce of platinum meantime breached $230 an ounce Monday, a new record high for the gold-platinum premium.
“Sentiment [towards gold] has gotten better in the past few days with investors focusing on central banks,” says Dominic Schnider at UBS Wealth Management in Singapore.
On the currency markets, the Euro rallied above $1.23 Monday morning, pushing Euro gold prices down to more-or-less where they started the day, around €42,400 per kilo (€1318 per ounce).
“Speculation that the [European Central Bank] might take some concrete measures is making it a little hard for the market to sell [the Euro] too aggressively,” one Tokyo-based trader tells newswire Reuters.
ECB president Mario Draghi said last month that the central bank is ready to do “whatever it takes to preserve the Euro”, comments which have been interpreted by many as a hint that it might intervene in markets to support government bond prices and thus prevent borrowing costs rising too high.
Draghi subsequently added that governments would first have to approach Europe’s bailout funds, the European Financial Stability Facility and its successor the European Stability Mechanism, for assistance, describing this as a “necessary…but not sufficient” condition of ECB action. Germany’s government however will not be in a position to ratify the €500 billion ESM unless this is approved by the German Constitutional Court, which is due to rule next month.
Some European leaders have expressed skepticism over the effectiveness of ECB bond buying.
“We haven’t forgotten what happened in August of last year,” said ECB Governing Council member and Belgian central bank governor Luc Coene in newspaper interviews published Saturday.
“We bought Italian bonds and right after that the Italian government reneged on its pledges…the conclusion is clear: When you take away the market pressure, you take away the pressure on politicians to act.”
“We’ve got a critical view on [ECB bond buying],” added Finnish prime minister Jyrki Katainen in an interview with Germany’s Der Spiegel on Sunday.
“The European Central Bank purchased sovereign bonds on the secondary market, and it only helped temporarily.”
Yields on 3-Year German bunds ticked back above 0% Monday, having fallen into negative territory again last week. Yields on 2-Year bunds remained less than zero this morning.
“I’m skeptical of investing in zero-yielding paper,” says Johannes Jooste, senior strategist at Merrill Lynch Wealth Management in London.
“I’m not convinced the current yields are justified…the risk that Germany will have to issue more debt to finance the bailout [of struggling Euro members] is real.”
Over in the US, the Federal Reserve should begin a third round of quantitative easing, according to Federal Reserve Bank of San Francisco president John Williams.
“[The economy is] at the point where it is definitely tilting toward taking further action,” Williams said in an interview published by the San Francisco Chronicle Friday.
In New York, the difference between bullish and bearish contracts held by gold futures and options traders on the Comex – known as the speculative net long – fell by 7.6% in the week to last Tuesday, the day of the week for which the Commodity Futures Trading Commission publishes such data.
By the end of Friday however, open interest in gold futures had ticked higher, gaining 2.3% on Tuesday’s volume.
The world’s biggest gold ETF, the SPDT Gold Shares (GLD), added 3.2 tonnes of gold bullion to its holdings over the course of last week, taking the total to 1258.1 tonnes.
By contrast, the world’s largest Silver ETF, the iShares Silver Trust (SLV), saw its holdings fall 16.6 tonnes to 9742.4 tonnes.
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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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