London Gold Market Report
from Ben Traynor
BullionVault
Thursday 15 Sept., 08:10 EDT
THE PRICE OF PHYSICAL gold fell in wholesale dealing for the sixth time in nine sessions on Thursday morning in London, as world stock markets rallied sharply on the third anniversary of the collapse of Lehmans Bros. investment bank.
Flirting with $1800 per ounce – some 6.3% below last week’s new record high – the gold price still stood 132% higher from 15 Sept. 2008.
Major-government bonds also eased off Thursday morning, nudging the yield on 10-year US Treasury debt back above 2.00% per year.
Energy and base-metal prices jumped in the commodity markets, but silver fell together with gold, dipping through $40.25 per ounce for the third day running.
“We feel risk [in the financial markets] is slowly turning lower considering the lower highs” in the gold price, say technical analysts at bullion bank Scotia Mocatta.
“We still see gold trending higher,” counters Walter de Wet, commodities strategist at Standard Bank.
“Gold in Euros should outperform gold in Dollars as we see the Dollar strengthening towards $1.30
against the Euro.”
The gold price in Euros also slipped early Thursday, falling below €42,000 per kilo for the first time in a week as the single currency rose together with industrial commodities and global stock markets.
Still attempting to resolve the latest phase of the Greek debt crisis, German chancellor Angela Merkel and French president Nicolas Sarkozy said last night they are “convinced” Greece will remain in the Euro, following a conference call with Greek prime minister George Papandreou.
“The president of the republic and the chancellor have underscored that it is more than ever indispensable to fully implement the decisions adopted on July 21 by the heads of state and government of the Euro zone to assure the stability of the Eurozone,” said an official statement distributed by governments in Paris and Athens.
The emergency summit held on July 21 agreed a further €109 billion in Eurozone-funded loans for Greece, along with additional powers for the European Financial Stability Facility – the Eurozone bailout vehicle set up last year.
Flatly contradicting Wednesday’s statement from European Commission president Jose Manuel Barroso, however – who told the European Parliament that the Commission “will soon present options for the introduction of Eurobonds” – Mrs Merkel today said the concept of joint-government bonds collectively backed by all Eurozone nations is “absolutely wrong.
“In order to bring about common interest rates, you need similar competitiveness levels, similar budget situations. You don’t get them by collectivizing debts.”
By lunchtime in London today, the wholesale gold price for new Eurozone buyers stood 5% below the new record high hit Monday morning.
“There is no chance that the major countries of Europe will let their [financial] institutions be at risk,” US Treasury secretary Tim Geithner said Wednesday.
Geithner – speaking to Jim Cramer on CNBC’s Squawk Box – quoted Merkel as telling US officials that Europe is “not going to have a Lehman Brothers.”
Germany, however, “needs to do more to make that commitment credible to the world,” he said, adding that European leaders have been “behind the curve” since the Eurozone crisis began.
“Confidence amongst banks,” write analysts at German gold bullion refiner Heraeus, “has fallen to levels seen just after the Lehmann collapse and the so-called interbank-money-market appears to have come to a complete halt.”
“There is some similarity between the Euro crisis and the subprime crisis that caused the crash of 2008,” writes renowned investor George Soros in an essay republished by news agency Reuters.
“Unfortunately the Euro crisis is more intractable…since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous.”
Soros adds that Spain and Italy are “on a course that will eventually land them in the same predicament as Greece.”
In Switzerland meantime a rogue trader has cost investment bank UBS an estimated $2 billion from unauthorized trading, according to a statement the bank made Thursday.
In 2008 UBS lost over $18 billion, according to the bank’s annual report for that year.
“This could be a critical tipping point for UBS’s strategy,” reckons Simon Maughan, head of sales and distribution at MF Global in London.
“It looks unreformed, unwieldy and ultimately unsustainable…how many times do we have to see huge UBS losses?”
Ben Traynor
BullionVault
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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.
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