London Gold Market Report
from Adrian Ash
BullionVault
Thursday, 11 July 08:50 EST
WHOLESALE prices for gold retreated from an overnight surge to nearly $1300 per ounce in London trade Thursday morning, while world stock markets ticked higher with major government bonds and commodities.
Gold’s earlier 4.0% jump came after Federal Reserve chairman Ben Bernanke confirmed that the US central bank will maintain its “highly accommodative monetary policy for the foreseeable future [because it] is what’s needed.”
Trading more than $100 above late June’s three-year low of $1181 per ounce Thursday morning, gold in large wholesale bullion bars recorded its best London Fix in two weeks.
After falling sharply on previous talk of ending quantitative easing by mid-2014 and perhaps then raising rates from zero, “The strong reaction of the precious metal markets,” says Germany’s Commerzbank in a note today, “is [because] investors believe that the Fed’s actions and attitude do not differ significantly from those of the ECB or BoJ.”
The European Central Bank last week suggested it may soon cut Eurozone interest rates from the current 0.5%.
The Bank of Japan today kept its monetary policy unchanged, holding interest rates at 0.1% and continuing with more than $700 billion per year of new quantitative easing.
“For the mid to longer term,” says David Govett at brokers Marex Spectron, “look to buy dips.
“Over the course of the next six months, gold will grind higher…On the whole, I favour the upside longer term.”
Amidst gold bullion‘s record quarterly price drop this spring, “Recent recoveries consisted of upward moves of $150 and $80 respectively,” says another precious metals analyst, pointing to a top of $1320 for the current run “should it approximate what we saw in May.”
“I suspect a test of $1300 will be on the cards,” says MKS Capital’s chief trader Alex Thorndike, because “order books are very light up to that point.
“I have heard some chunky [mining] producer offers sit above this level, and there are good sell orders in the $1300-10 region.”
UK investors wanting to buy gold bullion bars today saw the price reach a 3-week high above £857 per ounce.
Silver prices meantime eased back 1.0% after hitting a 3-week high of $20.29 per ounce.
The Euro currency also cut its earlier gains vs. the Dollar, as fresh political wrangling was blamed for a drop in Portuguese stock and bond prices.
Meantime in India, the world’s No.1 gold consumer market, “We will not promote the sale of coins and gold bars till [the country’s current account deficit] issue is resolved,” the Times of India quotes Sanjeev Agarwal, CEO of major retail chain Gitanjali, today.
Sixty-five per cent of India’s gold retailers have agreed to suspend sales of gold bars and coins for 6 months, the All India Gems & Jewellery Trade Federation said Wednesday, to help the government reduce imports and so cut India’s large gap between cash inflows and outgoings.
Analysis by Barclays Capital says June saw the heaviest outflow on record of money from Indian bonds and equity holdings.
Whilst India “remains vulnerable” to more outflows of foreign money, “For those concerned that the central bank will be forced to sell [some of its] gold,” says the Sober Look blog, “at this stage there are a number of other alternatives.”
India grew its reserves of gold bullion bars by nearly 60% in 2009, buying 200 tonnes from the International Monetary Fund at a price of $1045 per ounce.
“Given the nation’s cultural attitude toward gold,” says Sober Look, “[selling reserves is] politically just not an option.”
For the retailers’ gold bullion suspension, “If we don’t follow through,” says Vikas Chudasama, director general of the All India Gems & Jewellery Trade Federation, “there may be a situation when jewelers don’t have any gold to sell.
“The government and the Reserve Bank of India have already restricted gold imports.”
The Times of India notes that over the last 10 years, gold jewelry demand has remained constant, but investment demand has risen 150% since 2009.
The ban will run beyond India’s peak gold-buying festival season of Diwali and Dhanteras.
But “retailers will not be hit [so badly],” says The Times, “due to the low profit margins” on coins and bars – some 1-2% versus 8-12% on jewelry.
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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.
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