London Gold Market Report
from Ben Traynor
BullionVault
Monday 5 December, 09:00 EDT
THE DOLLAR gold price fell to $1731 per ounce by Monday lunchtime – 0.8% below where it ended last week – while stocks and commodities edged higher and US Treasury bond prices fell ahead of a meeting between the leaders of France and Germany in Paris.
“There is likely to be a fair amount of volatility on the political front this week,” warns Nic Brown, head of commodities research at Natixis.
“Should sentiment improve further in the market,” adds Commerzbank analyst Eugen Weinberg, “it wouldn’t be surprising if [the gold price]falls again, but it may also come under pressure if the rest of commodity sector comes under pressure.”
The silver price meantime dipped to $32.53 per ounce – still broadly in line with Friday’s close – while yields on Italian and Spanish bonds continued to ease.
Italy’s “huge public debt…is not Europe’s fault,” Italian prime minister Mario Monti told a press conference on Sunday.
“It is the fault of Italians.”
Monti – who is also reported to be giving up his salary – was unveiling €30 billion of emergency austerity measures, including plans to remove inflation index-linking for many pensions.
Italy’s welfare minister Elsa Fornero dissolved into tears when she tried to announce the measures, unable to utter the word ‘sacrifice’.
In Paris meantime, French president Nicolas Sarkozy met German chancellor Angela Merkel today to discuss how the 17-member Eurozone might move towards the creation of a fiscal union. Merkel has repeatedly argued that greater fiscal discipline among Eurozone national governments – with a tougher set of budget rules – is the only way to provide a lasting solution to the crisis.
“For several months now, it’s Merkel who decides and Sarkozy who follows,” Francois Hollande, French Socialist Party presidential candidate, said last week. Fellow Socialist Arnaud Montebourg has described Merkel’s policy as “Bismarck-like” – a reference to Germany’s chancellor at the time of the Franco-Prussian war of 1870-71 – while Pierre Moscovici, an aide to Hollande, said today that a budgetary union would “erode our national sovereignty”.
Front National leader Marine Le Pen – who has called for France to quit the Euro – also said this weekend that France’s sovereignty is under threat.
Should agreement on further fiscal integration be reached at this Friday’s European Union summit, then “the door should swing open for the [European Central Bank] to become more aggressive” reckons Erik Nielsen, global chief economist at Italian bank UniCredit.
Eurozone national central banks meantime could provide hundreds of billions of Euros to the International Monetary Fund, money that would then be put into a special fund from which to aid distressed European sovereigns, according to a report in German newspaper Die Welt. The US Federal Reserve may also contribute, the newspaper added.
The Netherlands has the most debt-burdened households in the Eurozone, according to a report in the Wall Street Journal. Many Dutch, it reports, took out mortgages worth 125% of their home’s value in the years before the global financial crisis – leaving Netherlands households with a debt-to-income ratio of 249.5%. Second on the list is Portugal, the report says, with a ratio of 128.6%.
“From a financial stability perspective, we think the mortgage loan-to-value ratios are too high,” says Gerbert Hebbink, senior economist at the Dutch National Bank.
“This debt makes the economy much more vulnerable to shocks in the housing market, interest rates and employment.”
The number of bullish minus bearish contracts held by noncommercial gold futures and options traders on New York’s Comex exchange – the so-called speculative net long – fell for a second week running in the week ended 29 November, dropping 2.5%, according to data published Friday by the Commodity Futures Trading Commission. Over the same period, the Dollar gold price rose 0.5%.
Total open interest meantime – the total number of unsettled contracts from the period – fell 4.7%, its third weekly fall.
“That the gold price has risen against falling open interest on Comex does imply a weaker market, with caution central for now and somewhat transfixed on both positive and negative news flows,” said a note from precious metals consultants VM Group this morning.
Over in India – the world’s largest source of private gold bullion demand – the Rupee gold price approached all-time highs Monday morning as the Rupee fell against the Dollar.
Despite India being in the middle of the wedding season, “there is virtually no demand for gold” says Prithviraj Kothari, president of the Bombay Bullion Association.
“Demand is very slack,” agrees Vasu Acharya director at Parker Bullion in Ahmedabad.
“If you compare it with last year, it is just 20% of the sales.”
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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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