London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 20 March 2012, 09:00 EDT
U.S. DOLLAR gold bullion prices dropped to $1643 an ounce Tuesday lunchtime in London – 1.0% down on Friday’s close – as stock and commodity prices also fell and US Treasury bonds rose.
“[Gold] support is at $1625,” says the latest technical analysis from bullion bank Scotia Mocatta.
“A breach of this level opens up a full retracement to the $1522 December lows.”
Silver bullion fell to $32.07 per ounce – 1.6% down on the week so far.
On the currency markets, the Dollar rallied, gaining 0.4% against the Euro.
The strike by gold dealers in India entered its third day Tuesday. Gold dealers have shut their premises in protest at last week’s government decision to double gold import duties. India imported 969 tonnes of gold bullion in 2011, according to World Gold Council data.
“The import of gold of such magnitude strains balance of payments and affects the exchange rate of the Rupee through impacting the supply-demand balance of foreign exchange,” finance minister Pranab Mukherjee, who announced the duty hike, said earlier today.
“At the moment, it’s not looking great for gold,” reckons Nikos Kavalis, metals analyst at Royal Bank of Scotland.
“On the one hand you have the strengthening Dollar against the Euro hitting the market and you also don’t have that much support from the physical market…At the same time, we are still standing by our bullish call for the market. We think prices can, and will, go higher later in the year, so I would say at current prices, we would definitely be buyers.”
“Beyond the short term,” adds Anne-Laure Tremblay, London-based analyst at French bank BNP Paribas, “we remain positive on gold’s outlook as the fundamentals are still solid. These include high liquidity, low interest rates and sovereign debt concerns.”
Institutions that sold credit default swaps against a Greek sovereign default will have to pay out up to $2.5 billion, following an auction Monday to determine the recovery value of Greek bonds.
Earlier this month, the International Swaps and Derivatives Association, which adjudicates on whether CDS should pay out, agreed that a credit event has occurred in Greece.
In Italy meantime, prime minister Mario Monti was holding talks with unions Tuesday aimed at persuading them to go along with labor market reforms.
Elsewhere in Europe, the Netherlands “is confronted with the same problems as Italy and Spain”, according to Dutch government think tank CPB.
“Budget cuts are equally required in these countries in order to regain control of the government budget, whereas reforms must be implemented simultaneously in order to ensure economic growth.”
The Dutch government is expected to run a deficit this year equivalent to 4.6% of GDP and is trying to find around €9 billion in budget cuts. Last month it agreed to the Eurozone fiscal pact that deficits should be no bigger than 3% of GDP.
The Netherlands has been in recession since last July, Reuters reports, but is still rated AAA by all three major ratings agencies.
Here in the UK, inflation continued to fall last month. February’s consumer price index data published this morning show that annual inflation was 3.4%, down 3.6% in January and its lowest rate in two years.
The UK’s Office for Budget Responsibility meantime has raised its forecast for economic growth, the Financial Times reports. The OBR’s most recent forecasts were made last November.
The new more optimistic predictions are expected to be revealed in tomorrow’s Budget, and are “extremely close to those in the autumn statement” the FT writes, citing “government insiders”.
Saudi Arabia meantime has pledged to send oil tankers to the US in a bid to bring oil prices down to a “fair” level. US consumer price inflation saw its biggest monthly rise in nearly a year last month, with gasoline prices rising 6% in February.
Federal Reserve chairman Ben Bernanke is due to begin his so-called “PR offensive” later on Tuesday, when he delivers a lecture to undergraduates at George Washington University. Tuesday’s lecture is the first of four such appearances in which Bernanke will speak on the role of the central bank, ahead of the Fed’s centenary next year.
Steel production growth in China, the world’s second-biggest gold consumer, has “flattened”, according to Ian Ashby, president, iron ore at Australia-based miner BHP Billiton.
“[But] we still see positive growth out to the middle of the next decade.”
The daily volume of gold bullion transferred between parties by clearing members of the London Bullion Market Association fell 12.2% last month to 606.5 tonnes, according to LBMA figures published Tuesday. The fall follows a 1.0% monthly gain in January.
The daily volume of silver bullion transferred rose 7.2% to 4976 tonnes, following a 24.3% monthly drop in January.
Holdings of silver and gold bullion in the world’s two largest silver and gold ETFs– iShares Silver Trust (SLV) and the SPDR Gold Trust (GLD) – remained unchanged Monday. The SLV is unchanged since last Monday, while the GLD has not moved since last Tuesday.
ETFs meantime have been included on a list of “possible shadow banking entities” being examined by the European regulators.
The European Commission’s Financial Stability Board says it “has identified a possible mismatch between liquidity offered to ETF investors and less-liquid underlying assets”.
“The current regulatory debate,” continues the European Commission green paper on shadow banking, “focuses on possible liquidity disruptions; the quality of collateral provided in cases of securities lending and derivatives (swap) transactions between ETF providers and their counterparties; and, conflicts of interest where counterparties in these transactions belong to the same corporate group.”
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.
(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 been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Tradervox (Dublin) – Euro rose during the early US session above the 1.3200 levels, erasing the earlier slide of the day. Correlation between the Euro and US stocks broke as US stock opened up in red. Euro is currently trading around 1.3220, down about a tenth of a percent for the day. The resistance may be seen at 1.3260 and above at 1.3300 levels. The support may be seen at 1.3200 and below at 1.3160 levels.
Tradervox (Dublin) – According to some analysts and economists, the Budget statement expected to be released by Chancellor of the Exchequer is expected to indicate a 0.3 expansion of GDP in this year’s first quarter. Further, despite inflation being above expectations, it has reduced over the month, something that has been construed to mean that the BOE’s quantitative easing program is yielding some positive results. Inflation is expected to remain an issue as growth starts to be seen in the country paving the way for a forecast of 0.8 percent GDP growth.
Tradervox (Dublin) – George Osborne, the Chancellor of Exchequer, is expected to give some hope for the sterling pound this week when he announces an expansion of Growth Domestic Product by 0.3 percent for the opening three months of this year. In his budget statement, Osborne is expected to indicate that Britain is in a better position to avoid recession which is expected to high Europe later in the year. In fact, RBA Governor has indicated that Europe has been in a recession for sometime now, warning that caution should be taken.
Tradervox (Dublin) – The single currency was under the pressure throughout the day against the US dollar as it gives up the 1.3200 levels. The pair is trading around 1.3180, down about 0.43% for the day. The support may be seen at 1.3160 and below at 1.3100. The resistance may be seen at 1.3200 and above 1.3260.PPI data from Germany came below expectation at 0.4%. Analysts expected it to be at 0.5% month over month. 