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August 11, 2009

London Gold Market Report
by Adrian Ash

08:45 EST, Tues 11 Aug.

Gold Beaten by Silver "Both Up & Down" as Miner Dehedging, Lower Scrap Supplies Support Prices

GOLD HELD FLAT Tuesday morning in London, adding 0.6% from yesterday's 7-session low as Asian stock markets rose but European shares reversed early gains.

Oil futures were little changed below $71 per barrel despite news that China's crude imports jumped by 18% in July to a new monthly record.

Developed-world government debt rose, meantime, pushing the yield offered to new buyers of 10-year US Treasuries down to 3.76%.

Silver bounced 1.6% from Monday's four-session low at $14.32 an ounce.

"Silver continues to outperform Gold both on the upside and on the downside," says today's Metal Matters from London market-makers Scotia Mocatta.

"Silver is benefitting from both investment demand and anticipation of a pickup in industrial demand," the monthly report says, but de-hedging by Gold Mining companies who'd previously sold their future production forwards on the derivatives market "still provides support" for Bullion.

AngloGold Ashanti, the world's fourth largest gold-miner, took advantage of July's 5% drop in Gold Prices to buy back 43.5 tonnes of the gold it had sold forward, leaving its hedge book at 139 tonnes.

"Official gold sales in 2009 seem set to fall to the lowest level since 1994," Scotia Mocatta goes on, "with net central banks sales likely to be in the order of 140 tonnes this year, down from 246 tonnes in 2008."

The Bullion bank also believes sales of scrap gold fell to 350 tonnes between April and July, down by 40% from the first quarter of 2009. Current scrap supplies are limited, another London dealer confirms, but physical gold buying is also taking its traditional August holiday.

"This month and ahead of the festivals, the real consumers will be Buying Gold," said Haresh Acharya, an Indian bullion dealer at wholesalers Parker Agrochem Exports Ltd in Ahmedabad, Gujurat to Reuters today.

"However there is hardly any demand from northern India because of the below-normal monsoon. If the monsoon fails, the full year will be very bad."

Analysis from Religare Capital Markets in Mumbai challenges this view, however, showing that poor monsoons have less impact on India's traditionally strong autumn gold buying than rural incomes - likely to be boosted by government aid if the harvest is bad - and the recent 3-month stability in Rupee Gold Prices.

"We are not in the 1980s and '70s or '60s when rain played a very important role in our GDP through agri-sector growth," says Religare's president Amitabh Chakraborty, also speaking to Reuters.

Gold imports to India - the world's No.1 gold consumer market - may rise by 15% between July and Jan., says another Mumbai analyst, after falling by one-half in the first six months of the year.

"Gold is currently supported by a weak Rupee," reckons Commerztrend's Gnanasekar Thiagarajan. "Gold may again go up if the Fed indicates inflationary concerns" in tomorrow's US interest-rate decision.

On the data front Tuesday, Germany reported flat consumer prices for July, but deflation in wholesale prices accelerated to 10.6% year-on-year.

The Euro ticked back above $1.4150, holding the Gold Price in Euros just shy of €670 an ounce.

UK investors now Ready to Buy Gold saw the price touch fresh two-week highs above £576 as the Pound stayed below $1.6500.

The Bank of Japan meantime kept its key interest rate at 0.1%, warning that "It may take time for falls in consumer prices to end."

Japan's consumer price index - excluding volatile food prices - showed the fastest drop on record in June, down 1.7% from a year earlier.

Gold priced in Japanese Yen has more than trebled since the Bank of Japan initiated its "zero interest rate policy" to try and combat deflation at the start of this decade.

Adrian Ash
BullionVault.com

Head of research at BullionVault.com, the fastest growing gold bullion service online, Adrian Ash is also City correspondent for The Daily Reckoning in London, and a regular contributor to MoneyWeek magazine.

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