London Gold Market Report
from Ben Traynor
BullionVault
Monday 5 March 2012, 09:00 EST
DOLLAR gold prices briefly dipped back below $1700 an ounce Monday morning in London, as stocks, commodities and the Euro all fell before recovering some ground, following news that China has cut its official growth target.
Silver prices dropped to $34.06 per ounce – 2.2% down on Friday’s close – before making up some of the loss.
Gold prices did manage to stay above last week’s low of $1691 per ounce. Gold prices fell by $100 an ounce last Wednesday following Fed chairman Ben Bernanke’s appearance before Congress.
“We would expect fresh liquidation of long gold positions on a move below $1690,” says the latest technical analysis from bullion bank Scotia Mocatta.
Well-known investor and Gloom, Boom & Doom Report publisher Marc Faber has said that gold could fall below $1500 an ounce, though he remains a gold owner and dismisses the notion of a gold bubble.
China has lowered its official growth target from 8% annual growth to 7.5%. China was the world’s biggest gold buyer in the fourth quarter of last year, according to World Gold Council data.
“China’s economy is encountering new problems,” premier Wen Jiabao told the annual National People’s Congress in Beijing on Monday, adding that “expanding consumer demand” is his first priority.
“We will vigorously adjust income distribution, increase the incomes of low- and middle-income groups, and enhance people’s ability to consume,” Wen said. Several economists have argued recently that China’s economy needs to rebalance towards domestic demand.
China’s new 7.5% growth target “indicates the lowest level that the government is comfortable with,” explains Michael Buchanan, Hong Kong-based chief Asia-Pacific economist at Goldman Sachs.
“[It] is also a signal to local officials that they shouldn’t solely focus on the rate of expansion…China’s trend growth rate is coming down but it’s still higher than [the new target], more like around 9%.”
Wen, along with China’s president Hu Jintao, is among seven members of Beijing’s nine member Politburo Standing Committee due to be replaced in October.
In Moscow meantime, Vladimir Putin has declared victory in Russia’s presidential election, a victory which would see him take over as president again after four years as prime minister.
“We won in an open and honest fight,” Putin told supporters, responding to allegations of electoral fraud.
Greece’s €206 billion bond swap was in doubt Monday with private investors appearing reluctant to participate, the FT reports. As part of its €130 billion bailout deal agreed last month, Greece’s private sector creditors have been asked to take losses of some 70% on their bond holdings.
If less than 75% of bondholders take part, Greece may have to resort to the collective action clauses inserted retroactively by the Greek government, which would force hold-outs to take part – a move which could yet trigger credit default swap payments. If less than 66% agree to take part, the CACs themselves would become invalid, putting the whole deal in doubt.
European banks, which collectively borrowed just under €530 billion from the European Central Bank at last week’s longer term refinancing operation (LTRO), deposited a record €821 billion with the institution over the weekend, ECB figures show.
Euribor interest rates, at which banks lend Euros to each other, have fallen significantly since the ECB conducted its first LTRO in December.
“Clearly money market conditions have stabilized,” says Barclays Capital interest rate strategist Moyeen Islam.
“If the ECB wants to play its proper role as a guardian against the risk of wholesale economic and financial ‘Eurogeddon,'” adds Holger Schmieding, economist at Hamburg –headquartered Berenberg Bank, “[then] Europe [would have] no need to go begging for ‘rescue shield’ money in China, Russia, Brazil or at the International Monetary Fund in Washington.”
The ECB’s Governing Council is due to announce its latest monetary policy decision this Thursday, as is the Bank of England’s Monetary Policy Committee.
The Eurozone’s purchasing managers index for services, which indicates whether the sector is expanding or contracting, fell to 48.8 last month – down from 50.4 in January – figures published Monday show. A PMI figure above 50 indicates sector expansion, while below 50 implies the sector is shrinking.
The difference between bullish and bearish contracts held by gold futures and options traders on New York’s Comex – the so-called speculative net long – rose by 9.9% in the week ended last Tuesday to its highest level since last September, according to the latest Commitment of Traders report from the Commodity Futures Trading Commission.
“The change in the net position was once again the result of speculative longs added,” says Marc Ground, commodities strategist at Standard Bank.
“Another mild increase in short positioning [however] detracted somewhat from the overall improvement.”
Gold prices fell sharply last Wednesday, the day after the period covered by the latest CoT report.
The next CoT is not due until late on Friday, but data from CME Group, which runs the Comex, show open interest in gold futures fell 6.3% between Tuesday and Friday last week.
The world’s largest gold ETF, the SPDR Gold Trust (GLD), saw its holdings of gold to back its shares grow by 0.7% to 1293.7 tonnes over the week to Friday, taking its holdings to their highest level since mid-December and just over 2% off their June 2010 all-time peak.
The iShares Silver Trust (SLV) meantime also saw a 0.7% rise in its bullion holdings last week. As of Friday, the world’s biggest silver ETF held 9763 tonnes of silver, 14.3% less than at its peak last April.
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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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