London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 16 October 2012, 08:15 EDT
SPOT MARKET prices to buy gold regained some ground Tuesday morning after dropping to a one-month low below $1730 per ounce, gold’s lowest level since the US Federal Reserve announced open-ended quantitative easing last month.
Gold prices rose to $1743 per ounce ahead of US trading, while stocks and the Euro also rallied following news that suggested Spain is prepared to request a bailout.
“We see resistance [for gold] now at $1758 with risk for a deeper downside move,” says Russell Browne, technical analyst at bullion bank Scotia Mocatta.
“Longer term [however],” adds Commerzbank technical analyst Axel Rudolph, “gold will remain in its multi-year uptrend while staying above the $1522 December low.”
Bullion holdings backing the world’s biggest gold ETF SPDR Gold Shares (GLD) fell back from record highs yesterday, dropping 6.6 tonnes to 1333.9 tonnes.
Silver prices meantime climbed back above $33 an ounce shortly before the US opened, while other commodities were broadly flat and US Treasuries fell.
Spain is prepared to ask for a bailout from the European Stability Mechanism, although it does not need financial aid and would make the request in order to enable the European Central Bank to start buying its bonds, according to a senior Spanish government official quoted by the Financial Times.
A condition of the ECB’s Outright Monetary Transactions program is that beneficiary nations have entered into a bailout program and agreed to deficit reduction measures before the central bank will buy its bonds on the secondary market.
“The credit line is not fundamental,” the Spanish official told the FT.
“It is circumstantial.”
Spanish prime minister Mariano Rajoy is employing “a very risky strategy” by delaying a request for a bailout in the hope of securing better conditions, says economist Jose Garcia-Montlavo at Barcelona’s Pompeu Fabra University.
“[Rajoy thinks] the worse it gets, the better for Spain…[as it] would make the Germans think more deeply about the cost of letting the southern countries sink.”
“If I was his adviser I’d strongly, strongly suggest changing tack,” says Citigroup economist Ebrahim Rahbari.
“If there’s something inevitable and painful it’s very rare that it pays off in a rational way to defer.”
Yields on 10-Year Spanish bonds have climbed higher since the start of Monday, reversing falls seen last week.
Elsewhere in Europe, the official Eurozone inflation rate remained steady at 2.6% last month, according to consumer price index (CPI) data published Tuesday.
Here in the UK, consumer price inflation fell to its lowest level in almost three years in September, falling to 2.2%, official figures published this morning show.
“The majority of the downward pressure to the change in the CPI came from the housing and household services sector,” says the official release from the Office for National Statistics, “with September 2011’s utility bill rises falling out of the index calculation.”
“[Inflation] could be pushed back above 2.5% in the near term,” says Howard Archer, economist at research firm IHS Global Insight, adding that food, utilities and petrol prices are likely to rise.
Royal Bank of Scotland meantime has suspended its head of rates trading for Europe and Asia, Jezri Mohideen, as part of its probe into allegations of Libor rigging, according to press reports Tuesday.
Mohideen is the most senior RBS employee to be suspended as part of the Libor investigation, the reports add.
Over in India, traditionally the world’s biggest gold buying nation, bullion importers reported increased activity after gold fell through $1740 per ounce yesterday.
India Post meantime announced a 7% discount on gold coins bought from post offices Tuesday, to celebrate the festivals of Dussehra and Diwali.
“For millions of gold lovers, this initiative provides an opportunity to buy gold during these auspicious days at reduced costs,” says Amresh Acharya of the World Gold Council, which partners with India Post and Reliance Money Infrastructure to offer the gold coins.
The discount will stay in place until December 31. India Post ran a similar promotion last year.
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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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