Safehaven | London Gold Market Report | Printer Friendly Version

August 27, 2009

London Gold Market Report
by Adrian Ash

Gold Break Out Looms as "Stocks Battle Bonds", Europe's Politicians Turn on Finance Sector

THE PRICE OF GOLD held inside this week's tight range early Thursday in London, trading up to $949 an ounce as Asian stock markets closed 1% lower and European stocks moved sideways.

Crude oil ticked lower towards $71 per barrel. Government bond prices rose.

The Dollar was little changed vs. the Euro ahead of a revised GDP estimate, expected to show the US economy contracting by 1.5% between April and end-June.

"Gold doesn't really have its own momentum," said one Hong Kong dealer to Reuters this morning.

"I suspect that will remain the case until after the US Labor Day holiday [on Sept. 7] when most people, including fund managers, return from their holidays."

Next Monday's August Bank Holiday here in the UK will mark the end of London's vacation season.

Thursday morning saw Sterling fall as better-than-expected UK housing data was negated by a record drop in business investment of almost one-fifth from this time last year.

Dropping to a fresh 6-week low vs. the Dollar below $1.62, Sterling's fall helped drive the Gold Price in British Pounds above £585, a new 11-week high.

Eurozone investors looking to Buy Gold meantime saw the price sit tight, moving just €1.50 either side of €664 an ounce.

"Shrinking ranges are often warnings of a pending break out, but the question of 'when' is still a mystery," says a technical note from Scotia Mocatta in London.

"The lower tops in August of $971, $960 and $957 signal that the market is a bit tired but we will need to break $930 to bring in the sellers."

"The bond market is bearish on the economy, while the equity market is bullish," says Walter de Wet at Standard Bank. "Both can't be right [and] precious metals are caught in the battle."

What gold dealers in the Far East called "light buying" dried up early Thursday as local stock markets fell and investment cash moved into government bonds.

Japanese government bond yields fell to a six-week low. The Yen rose to its best level this month vs. the Dollar, holding Tokyo Gold Futures flat at ¥2,859 per gram for August 2010 delivery.

"If China puts on the brakes, worries about the global economy will likely increase, which would lead to Yen buying," reckons Ayako Sera at Sumitomo Trust, speaking today to Bloomberg.

A report from Royal Bank of Scotland's Hong Kong office this morning said the Chinese government is "tweaking" its stimulus policies, aiming to "reduce froth rather than slow growth."

Facing a "decline in external demand [which] may continue for a longer time" in the words of one government official, Beijing has initiated a $585 billion stimulus package, urging greater consumer spending and sparking a fresh record in new private-bank lending of $1.1 trillion so far this year - more than twice the first 7 months of 2008. [Read more on China's Galloping Consumption here...]

German banks, in contrast, "are not stepping up to their responsibility to provide credit," said German finance minister Peer Steinbrück to Handelsblatt paper overnight.

The German government is now considering making direct loans to manufacturing businesses after Bundesbank chief Axel Weber warned of a "second wave" of financial crisis thanks to "stress from our domestic credit industry."

London's chief financial watchdog, Lord Turner, yesterday accused UK banks of indulging in "socially useless" trading and mooted a tax on financial transactions.

"If you want to stop excessive pay in a swollen financial sector, you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," said the chairman of the Financial Services Authority.

Barclays Global Investors (BGI) in New York meantime said it will push ahead with new exchange-traded products in precious metals, despite what Reuters calls "worries that US regulators may impose new position limits on commodity futures."

Monday saw BGI temporarily suspend the creation of new shares in its iShares S&P GSCI Commodity-Indexed Trust, after the volume of futures contracts it needed to track raw material prices got "really close" to position limits set by the Commodity Futures Trading Commission.

Exchange-traded gold funds - led by StateStreet's $34 billion SPDR Gold Trust - typically hold physical metal in trust. Leveraged, inverse and so-called "double" products do use derivatives, however, to extend their daily moves.

Neither the CFTC in the States nor the FSA in Britain regulate the market in physical metals such as Gold Bullion.

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.

Useful links: FAQs, Gold price now, Public order board, and The Case for Gold

More on BullionVault

BullionVault makes buying gold simple. It buys guaranteed, market deliverable gold bars and stores them at professionally recognized bullion vaults. The actuarial risk of loss is so small that your gold is stored with insurance included at 0.12% per annum.

On BullionVault you buy whatever quantity of gold you like, starting from as little as 1 gram. Choose where to store your gold from recognized vaults in London, New York or Zurich. Your gold will be in the form of good delivery bars, so it will retain full resale value straight back to the professional market.

As a seller at any time in the future, you will benefit by having gold of professional market status. Your top-quality warranted bullion can be offered directly to new buyers on BullionVault's highly active and publicly accessible order board. You can even quote your own prices, meaning you will earn - rather than pay - the trading spread.

For your full security and peace of mind, BullionVault also publishes a complete daily bullion audit in the world, enabling you to safely check your proven holding from an internet computer anywhere, and to prove it to the physical bar list issued to BullionVault by its vault operators.

By April 2007 - just two years after launch - BullionVault was storing for its customers cash and gold amounting to more than $68m.

For further information contact enquiries@BullionVault.com

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 should be verified elsewhere if you choose to include it in your own analysis.