London Gold Market Report
from Ben Traynor
BullionVault
Friday 30 March 2012, 09:00 EDT
U.S. DOLLAR gold bullion prices hit $1669 an ounce ahead of US trading, more or less in line with where they started the week.
Stocks and commodities edged higher and US Treasuries dipped, while the Euro gained ahead of today’s Eurozone finance ministers’ meeting in Copenhagen.
Silver bullion meantime rose to $32.61 – a gain of 1% from the start of the week.
Heading towards the end of the first quarter of the year, gold bullion prices looked set to record their highest ever quarter-end London Fix of in Dollars, Euros and Sterling.
Silver meantime avoided a fourth straight losing quarter, positing gains of 15% in Dollars, 11% in Sterling and 11.6% in Euros.
However, most of the net gains in gold and silver for Q1 came in the first week of January, with gold having fallen sharply since gold failed to break $1800 last month.
“The physical market has stopped playing an important supportive role,” one Singapore dealer told news agency Reuters this morning.
“There is so much physical material, yet we don’t see any good offtake, as people are worried that it’s not the right time to invest in gold now…we don’t expect to see real physical demand until prices drop below $1600.”
Many Indian gold dealers remained on strike Friday, having closed their stores for the past fortnight following the Union Budget on March 16 which doubled the import duty on gold bullion and introduced a 1% tax on gold jewelry sales.
India’s government has said it is reviewing the gold sales tax, but finance minister Pranab Mukherjee says the import duty hike will not be reversed.
India imported an estimated 969 tonnes of gold bullion in 2011, according to World Gold Council data.
Including gold bullion imports in its trade figures may be “overestimating” India’s current account deficit problem, according to Rajeev Malik, senior economist at Asia-Pacific investment group CLSA.
“Although it is technically correct to include gold imports and exports in the current account balance as per IMF guidelines,” Malik says, “we peg the ‘overestimation’ of the current account deficit due to net gold imports to be around 20 to 30%.”
“The close to $200 billion in imported gold over the past decade does not represent a drain on India’s resources,” adds Taimur Baig, chief economist India, Indonesia and Philippines at Deutsche Bank.
“Rather [it is] a diversification of India’s wealth into precious metals.”
One senior gold industry figure, Rajan Venkatesh of bullion bank Scotia Mocatta, suggested this week that the Indian government could encourage gold certificates and other measures to encourage people to deposit gold with the banking sector.
Turkey meantime, which like India has a current account deficit and satisfies much of its gold consumption via imports, is also considering proposals designed to encourage the growth of gold deposit accounts in its banking sector.
“Turkey has historically been affected by repeated currency crises and resultant inflationary pressures, hence households traditionally hold substantial amounts of gold,” says the latest precious metals note from French bank Natixis.
This week, Turkey raised the proportion of Turkish Lira reserves banks can hold as gold from 10% to 20% – while cutting the proportion of foreign exchange reserves that can be held as gold from 10% to zero.
Combined with the move to encourage gold deposits with banks, the moves represents “an easing of monetary conditions, as well as enabling the Turkish banks to bolster their balance sheets through the use of a cheap source of capital,” says Natixis.
Back to Friday, and “focus is firmly on the Eurozone,” says a note from Marc Ground, commodities strategist at Standard Bank.
“We expect precious metals to follow the gyrations of the Euro/Dollar as markets react to speculations and/or announcements on this front.”
Eurozone finance ministers were today expected to approve combining the €440 billion temporary European Financial Stability Facility with the €500 billion permanent European Stability Mechanism when the latter becomes operational in July.
The move is aimed at raising Europe’s so-called ‘firewall’ against sovereign debt contagion, which was identified at last month’s G20 meeting as a prerequisite for additional International Monetary Fund aid.
“If the investors deem the plan as sufficient in reducing near-term Eurozone liquidity issues, we believe risk assets including gold may benefit,” says a note from HSBC today.
Since many Eurozone policy announcements have already been leaked, however, any moves in gold and silver prices are likely to be “knee-jerk reactions, rather than signal a new longer-term trend” says Standard Bank’s Ground.
Spain, which was hit by a general strike yesterday, was due to unveil a so-called austerity budget Friday.
Norway’s $610 billion sovereign wealth fund meantime – which owns 2% of all European stocks – is to cut its exposure to Europe from 60% of its assets to 40%, the Financial Times reports.
Iran has been helping Syria to ship oil to China in defiance of Western sanctions, Reuters reported today.
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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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