Month: September 2011

London Gold Market Report
from Ben Traynor
BullionVault
Thursday 8 September, 08:20 EDT

U.S. DOLLAR gold bullion prices rose to $1853 an ounce Thursday morning London time – 3.5% down on Tuesday’s all-time high.

Major commodities fell while stocks and government bonds were slightly up, on a day which saw both the European Central Bank and the Bank of England leave monetary policy unchanged.

“Gold continues to trade in a wider and more volatile range,” noted one London-based dealer this morning.

“Most sell orders are parked close to the $1900 level,” added a gold bullion dealer in Singapore.

“So long as we stay in the range of $1800 to $1900, the bullish trend is pretty much intact.”

On the downside, however, “a break of $1704 would confirm a double top is in place and would target $1488 on a measured move,” reckon technical analysts at bullion bank Scotia Mocatta.

Prices for silver bullion meantime rose to hit $42.38 per ounce around lunchtime – a 4.5% move in less than 24 hours.

The European Central Bank left its main policy interest rate unchanged at 1.5% on Thursday. Jean-Claude Trichet is due to give his penultimate post-decision press briefing on Thursday afternoon, which will be watched for hints of where ECB policy might go next.

“The debate in the markets has moved to rate cuts but I doubt it will happen,” says Gilles Moec, co-chief European economist at Deutsche Bank in London.

“The situation is very, very bad, the money markets have almost stopped functioning.”

The ECB has raised rates twice this year – in April and July – each time citing the risks of inflation. Trichet’s language at the press conference “will probably shift to neutral on inflation and downside risks to growth, which is enough to flag that the ECB is on hold,” reckons former ECB economist Laurent Bilke, now at Nomura.

“It is very unlikely that the ECB would do a massive U-turn so soon…that is just not how it operates.”

“The experience of late 2008,” counters Jacques Cailloux, chief European economist at Royal Bank of Scotland, “indicates that the ECB can change course very quickly.”

In July 2008 he ECB raised its rate from 4.00% to 4.25%. Following the collapse of Lehman Brothers later that year, however, the ECB cut its rate seven times between October 2008 and May 2009, when it reached 1.00%.

Here in the UK, the Bank of England’s Monetary Policy Committee voted Thursday to leave its interest rate at 0.5% – where it has been since March 2009. The MPC also voted to leave asset purchases at £200 – rather than increase them with a second round of quantitative easing.

“The time to launch QE2 has arrived…in order to avoid the risk of a double-dip recession,” said Graeme Leach, chief economist at business lobby group the Institute of Directors, speaking before the announcement.

Over in the US President Obama is due to give a speech on job creation later on Thursday, where he is expected to outline proposals worth around $300 billion in spending and tax cuts.

“We don’t feel that the plan will be received by market participants as a cure for the US economy’s problems,” says Marc Ground, commodities strategist at Standard Bank.

“Consequently, the current optimism should prove to be short-lived, with a return of investors to safe-haven assets imminent…we feel sentiment will soon turn in favor of gold, as uncertainty and Eurozone concerns are reignited.”

Shortly after taking office in January 2009 Obama announced a stimulus package worth around $800 billion. The American Recovery and Reinvestment Act became law the following month.

An estimated $710 billion in stimulus funds has been spent since, according to US government-run website recovery.gov. The unemployment rate for August was 9.1% – up from 7.8% when the stimulus package was first announced.

The Organisation for Economic Co-operation and Development announced Thursday that it has significantly reduced its global economic growth forecast.

“Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up,” said OECD chief economist Pier Carlo Padoan.

The OECD now thinks that G7 economies excluding Japan will grow at an annualized rate of less than 1% for the remainder of the year.

Ben Traynor
BullionVault

Gold value calculator | Buy gold online at live prices

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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already

By Dr. Alex Cowie

Kris Sayce isn’t the only guy around here who loves gold. We love it too!

But aside from physical gold, the other way to get exposure to the shiny metal is to buy gold stocks.

(In fact, as editor of Diggers and Drillers, precious metals make up most of the stocks we’ve tipped. We’ve got nine on the go at the moment!)

But it hasn’t been all good news for gold. Overnight, gold and silver took a bath. Gold lost $100 in 24 hours.

So what’s going on? Is this ‘top-of-the-market’ stuff? Should you sell your gold and silver?

In a word… No.

Gold may have lost $100, but taking a step back and looking at the big picture, you can see it’s no big deal. Look at the chart below. I’ve circled the latest drop to put it in context:

CLick here to enlarge

Gold is still flying, and in a strong uptrend. Any pullback we may see in the next week or two will be one of those ‘dips’ we are meant to buy on.

The world hasn’t changed overnight. The financial system is still in a mess. European banks are looking very Lehman-like, and it seems only a matter of time before one falls over or gets bailed out.

Gold is insurance against this happening. In US terms it has gained 27% in just two months. This is just not normal! This is a clear barometer that we are heading into the danger zone.

So what caused gold to fall off a cliff last night?

Well, gold’s latest ascent has been violent. We have seen massive swings up and down. In a few weeks the gold price has gone from $1,900 to $1,700; then back up to $1,920, and now down to $1800.

Last night’s fall in gold had a few triggers.

The main one was the German Constitutional Court. It ruled it OK for the German government to spend taxpayers’ money to bailout Greece. Although it said any further bailouts should be referred to the German parliament.

So, with the Eurozone saved again, gold sold off. The Eurozone lives to fight another day.

But in reality more future bailouts… means more future debt.

And more debt means higher gold prices.

The same goes for the other reason behind gold’s selloff last night. There were rumours U.S. President, Barack Obama will announce a grand job-making scheme tonight – to the tune of $300 billion.

But read that $300 billion figure as $300 billion of debt. Fight debt with debt? It seems they’ll never learn.

And again – that should mean higher gold prices.

The way we see it, pretty much every time a central banker or government leader opens their mouth it gives us reason to buy more gold.

Now, for all the talk about people rushing to buy gold… and gold being in a bubble… so far we haven’t seen any evidence of it. Here’s a personal example…

Earlier on in the year we bought precious metals from a bullion dealer in the city. It was almost as easy as walking in with cash to buy a TV or a pair of shoes.

But to get the cash we first had to pay a visit to our friendly neighbourhood bank. That’s not so easy – especially if you’re asking for a larger-than-normal amount. Don’t forget, banks don’t hold much cash on the premises!

Part of the ritual of getting our hands on our own cash was the teller wanted to know what I was withdrawing the cash for. When we told her it was to buy gold and silver, we could have sworn she thought we were speaking Swahili.

Not only that, she then tried her hardest to get us to make an appointment with the branch financial planner!

No thanks.

But buying physical gold is only half the strategy. It’s the conservative way to cash in on the debasement of paper money.

But, if you want to make really big gains from the rising gold price… in other words, leverage your exposure to the gold price, the best way to do it is to invest in gold and silver stocks.

It doesn’t matter if they’re explorers or developers. Both allow you to amplify your gains from a higher gold price.

The great thing is, although gold and silver stocks have made good gains, it has been from a low base. That means there’s still plenty further for them to go…

And it’s why, even with nine precious metals stocks in the Diggers and Drillers portfolio, there’s still room to add more.

Regards.
Alex

When Nine Gold Stocks Just Isn’t Enough

Sept. 8 (Bloomberg) — George Peristeris, chief executive officer at Gek Terna SA, talks about the Greek debt crisis and the benefits of euro membership. Peristeris also discusses Greece’s renewable energy industry with Linzie Janis and Nicole Itano on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

European equities are up for the second day in a row as the market tone appears to be shifting. The policy responses needed to support the financial markets are slowly coming in and have helped to stabilize the markets. Beginning with the SNB’s decision to fix the EUR/CHF rate at 1.20, the German Constitutional Court ruling, the passage of a new Italian fiscal package, an expected new jobs program from Obama and the potential for a policy response from the G7 shows the news-flow is now shifting in favor of higher yielding assets.

The BOE left both its interest rate and asset purchase facility unchanged today but rumors continue to float of the BOE implementing additional measures to ease UK monetary policy. However, one must note that UK gilt yields are already extremely low with the 10-year gilt yield trading at 2.33%. At this stage it’s unclear how much of an impact lower UK interest rates would impact the UK economy should the BOE implement another round of easing. The recent performance of the GBP/USD has been nothing short of ugly with the pair falling over 4% from its August high, though cable is up on the day following the BOE rate decision and it looks like the pair has made a triple bottom on the hourly chart. Support comes in at this week’s high of 1.6200 which is reinforced by the 38% retracement from the mid-August high. A break of today’s low of 1.5910 may have scope to the July low of 1.5780.

This afternoon is filled with unemployment and trade balance numbers from the US and Canada as well as speeches by Bernanke and President Obama but it will be the ECB press conference that drives the North American trading session. Expectations are for the ECB to lower its official inflation forecasts. What remains to be seen is just how dovish Trichet appears in his press conference later today. Trichet runs the risk of tipping his hat to the ECB backpedalling on its two previous interest rate increases earlier this year. With the EUR already coming under pressure from the European debt crisis, market players may be quick to sell the EUR should Trichet hint at the ECB reversing its previous tightening schedule. The EUR/USD has support at 1.3990 and a close below the long term trend line from May could have further technical implications for the EUR. Below here rests the July low of 1.3835 while resistance is found at 1.4280.

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By ForexYard

An attitude of dovishness has gained traction among central banks in Europe this week and investors are worried that a continuation of low rates, coupled with the possibility of a rate reduction in Europe in 2012, could diminish currency values as we get deeper into the third quarter, particularly in Britain.

Economic News

USD – EUR/USD Holding near 1.4000 ahead of EUR Rate Statements

The US dollar (USD) was seen trading mildly bearish early Tuesday as investors balanced risk sentiment ahead of this week’s series of interest rate announcements. A sudden wave of risk appetite seemed to have dropped the greenback following a move by the Swiss National Bank (SNB) to peg the CHF to the value of the EUR at 1.20 on Tuesday. Wednesday, however, saw the greenback paring some of those earlier losses and consolidating near 1.4000 against the EUR in late trading.

Optimistic data from the Canadian manufacturing sector yesterday also signaled an uptick in output from the previous month in the North American region. The news has done little to the forex market; however, though it could ripple through longer-term analyses on capital markets should they come into play later on. Most traders seemed to be awaiting further rate decisions, however, prior to making any sizeable bets.

With today’s releases revolving around European and British interest rate decisions, most traders appear to be on edge. The consolidation trends witnessed as forming in the major crosses are part and parcel of this anxiety. Many are anticipating dovish sentiment to emerge from the euro zone following mixed fundamental signals and recent talks about Italy’s austerity budget and Greece’s sovereign debt crisis. The US will also release its trade balance, though that news is likely to be overshadowed by Europe’s news.

GBP – GBP Flattening as Interest Rate Decision Approaches

The direction of the British pound (GBP) is lacking uniformity among speculators as the Bank of England’s (BOE) rate decision approaches. Against the US dollar (USD) the pound has actually been trending upwards despite the greenback’s bullish moves against its other currency rivals. But the pound has seen some setbacks brought about by poor regional fundamentals and a general atmosphere of risk flight.

Traders are looking for a way to balance a renewal of risk aversion with continued shakiness in global markets. A mildly pessimistic sentiment towards investing in the US dollar at the moment has many investors on edge. An embattled euro zone, fending off market bears amid turmoil in its peripheral nations, Italy flaring up recently, also looks to be losing ground in financial markets. With today’s rate statements on tap, wide swings in value and intense volatility should be anticipated.

Sentiment in Britain appears to have turned negative this week, with many analysts and economists expecting moves towards safety by traders following the BOE’s rate statements. An attitude of dovishness has gained traction and investors are worried that a continuation of low rates, coupled with the possibility of a rate reduction in Europe in 2012, could diminish currency values as we get deeper into the third quarter.

JPY – Japanese Interest Rate Decision Surprises No One

The latest moves of the Japanese yen (JPY) are causing some concerns among investors as many speculators are anticipating another round of intervention by the Bank of Japan (BOJ). With interest rate decisions out yesterday morning, traders appeared to show zero surprise in the announcement that rates would be held near zero. A strengthening yen has benefits for the buying power of the island economy, though its dependence on exports makes a strong yen unfavorable for longer-term growth in Japan’s current financial model. As the island currency remains bullish, the pressure begins to mount for the expected bank move to lower its currency strength.

The yen was indeed seen trading mildly lower versus most other currencies this morning as its value as an international safe haven was being challenged by an air of impending intervention by the BOJ. Being linked to international risk sentiment, the yen has experienced an expected uptick during a period when shifts away higher yielding assets became prominent. The JPY has been experiencing several long strides lately from the various shifts into riskier assets.

Crude Oil – Oil Prices Holding Consolidating ahead of Volatile Sessions

Crude Oil prices held steady Wednesday as sentiment appeared to favor a mild uptick in global stocks following reports of monetary moves being made by several central banks. Data releases out of Europe and the US last week are still driving many investors back into safe-haven assets as many reports suggested a surprise downtick in growth among global industrial output and consumer spending.

An expected dip in dollar values due to this week’s risk sensitive environment has helped many investors ram up their long-taking positions on physical assets, but with the USD’s losses not materializing in large enough numbers, sentiment appears to have the price of crude oil holding steady. Should Crude Oil sentiment continue to flatten this week, oil prices may reach a decision point which forces a wide swing by mid-week.

Technical News

EUR/USD

Last week’s candlestick highlights two key points; the inability of the EUR to maintain a bid above the 1.4500 level and the formation of an outside day down candlestick pattern on the close. As such the key support levels for the pair are found the 1.4100 level where the August 11th low coincides with the 61% Fib retracement from the July to August move. The other key level is the rising trend line from the May 2010 low which comes into play at 1.3975. To the upside resistance is found at this week’s opening gap of 1.4180 followed by 1.4325 and last week’s high of 1.4550.

GBP/USD

The GBP/USD has the monthly, weekly, and daily stochastics falling while the price is encroaching upon significant support where the 200-day moving average and the August 11th low coincide at 1.6110. A break here could open the door to 1.6000 with additional support way down at 1.5780. To the upside the high from last Thursday/Friday at 1.6250 stands as initial resistance followed by 1.6450 and 1.6615.

USD/JPY

The JPY has formed a base at 76.40 while failing to move below the all-time low of 75.94 set earlier in August. Weekly and daily stochastics have turned up but monthly stochastics remain firmly to the downside. Initial resistance is found at 77.70 followed by the post intervention high of 80.20 and finally at 81.30 off of the 2007 falling trend line.

USD/CHF

The appreciation of the pair failed at the 0.8275 resistance and the long term downtrend continued with a vengeance, falling as low as 0.7710 before recovering slightly. There are two levels that stand out from the August move higher; 0.7650 at the 50% Fibonacci retracement and the 0.7510 at the 61% retracement.

The Wild Card

EUR/SEK

As a result of the pressures in the euro zone and the search for safe haven currencies the Swedish krona has performed well with the EUR/SEK falling from its mid-August high of 9.35 to 8.9450. Yesterday’s low is an important technical level as it is the 61% Fibonacci retracement of the May to August move. Forex traders should eye a close below this technical level as the market could turn its focus on the next support levels of 8.8750 and 8.8540 from the May and April lows. Resistance is located at 9.0650.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

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The Bank of Korea kept its 7-day repurchase rate unchanged at 3.25% as deterioration in global economic conditions delayed the Bank’s path to normalization of monetary policy settings.  While noting the importance of the external environment, particularly risks to growth in developed economies, the Bank of Korea said: “Looking ahead, the Committee, while closely monitoring financial and economic risk factors both at home and abroad, will conduct monetary policy with a greater emphasis on ensuring that the basis for price stability is firmly anchored while the economy continues its sound growth.”

At its August meeting this year the Bank of Korea also held the interest rate unchanged at 3.25%, after increasing the 7-day repurchase rate by 25 basis points to 3.25% at its June meeting.  South Korea reported annual consumer price inflation of 4.7% in July (core inflation of 3.8%), up from 4.4% in June, 4.1% in May, and  4.2% in April, and currently above the Bank’s inflation target of 2%-4% through 2012.  The South Korean Won last traded around 1,075 against the US dollar, having gained around 4% this year.

The Narodowy Bank Polski‘s Monetary Policy Council held its benchmark 7-day interest rate steady at 4.50%.  The Bank said: “In the opinion of the Council, the significant monetary policy tightening implemented since the beginning of 2011 should facilitate inflation’s return to the target in the medium term. Given the above the Council decided to keep the NBP interest rates at the current level. The Council does not rule out the possibility of further monetary policy adjustment, should the outlook for inflation returning to the target deteriorate.”

The Central Bank of West African States [BCEAO] maintained its marginal lending facility rate at 4.25%, the minimum open market rate at 3.25% and the bank reserves requirement at 7.00%.  The BCEAO said in a statement [translated]: “During this session, the Committee considered the economic, financial and monetary recent West African Monetary Union, including the risks to price stability and economic growth prospects in the EU. In this regard, the Committee noted a trend toward slower pace of price growth.”