Weakness in Gold "Non-Sustainable", China, Investors and Central Banks "Happy to Buy on Dips"

By: Ben Traynor, BullionVault

-- Posted Tuesday, 4 December 2012 | Share this article | Source: GoldSeek.com

London Gold Market Report

SPOT MARKET prices to buy gold rose back above $1705 an ounce during Tuesday morning's London session, though it remained below where it started the week following falls overnight, while stock markets also edged higher along with the Euro after European leaders welcomed progress on Greece's debt buyback program.

Silver meantime fell to around $33.30 an ounce, still above last week's low, as other commodity prices also dipped.

Earlier on Tuesday spot gold fell to $1700 an ounce, its lowest level since the first week of November. Gold priced in Euros meantime fell to its lowest level since mid-August this morning.

"Clearly the situation has eased with respect to the Euro debt crisis, or market players are ignoring it," says a note from Commerzbank.

"The dip in the price of gold was not accompanied by weaker ETF demand," Commerzbank adds, noting that Bloomberg data show gold exchange traded funds saw their holdings rise to a fresh record yesterday.

"We therefore view the current price weakness is non-sustainable."

"The break [lower] probably will not last long," agrees one trader in Sydney, speaking to newswire Reuters this morning.

"Funds are happy to buy on dips, and so will the central banks and the Chinese."

Self-directed individual investors are also taking advantage of dips to add to their gold positions, according to the latest Gold Investor Index data published Tuesday.

The Gold Investor Index, which measures investor sentiment towards physical gold by tracking buying and selling activity on online precious metals exchange BullionVault, rose to a six-month high of 56.5 last month, up from 56.0 in October, with a reading above 50 indicating more net buyers than net sellers over the month.

On the currency markets meantime the Euro rallied to a seven-week high against the Dollar Tuesday morning, breaching $1.30.

Following their meeting on Monday Eurozone finance ministers said they confident Greece's debt buyback program will be a success.

Last week's Eurogroup statement said single currency finance ministers expected the prices Greece paid to buy back its bonds "to be no higher than those at the close on Friday 23 November 2012". 

Since the buyback announcement however Greek bond prices have risen, and Athens yesterday revealed the maximum price it will pay to be above that 23 November level.

Since the bond buyback announcement, the volume of Greek bonds traded has "increased by the day", according to Citigroup head of European government bond trading Zoeb Sachee.

"Hedge funds must have bought lower than here."

"The official sector continues to demonstrate its total misunderstanding of how markets operate," adds Julian Adams, chief investment officer at Adelante Asset Management in London, whose firm holds Greek debt.

"The whole saga has been a textbook case of how not to do this sort of thing."

Finance ministers from the 17 Euro member nations also formally agreed Spain's banking bailout. Back in June, a credit line of up to €100 billion was agreed for Spain's government to finance the restructuring of the country's banking sector. 

The single currency's permanent bailout fund the European Stability Mechanism has now authorized the first tranche of payments, worth €39.5 billion. 

The ESM was downgraded by ratings agency Moody's at the end of last week, with its credit rating cut one notch from Aaa to Aa1, following an earlier decision by Moody's to downgrade France.

Over in Washington meantime, in an open letter to President Obama, Republican House of Representatives speaker John Boehner called yesterday for reforms to Medicare and Medicaid as part of a package aimed at reducing federal spending over the next decade.

Boehner and several other Republicans also called for an additional $800 billion to be raised in revenue, half the amount they say Obama has asked for, as US political leaders continue to disagree over how to address the federal deficit.

"[The Republicans'] plan includes nothing new and provides no details on which deductions they would eliminate, which loopholes they will close or which Medicare savings they would achieve," said White House communications director Dan Pfeiffer in response to the open letter.

Failure to agree a deal would mean the US will encounter the so-called fiscal cliff of tax rises and spending cuts currently scheduled for the end of this month.

"Drawn-out talks that go down to the wire could potentially hurt equities and drag gold prices down," says Ed Meir, commodities analyst at INTL FCStone.

"However, one could make an equally convincing case that were the talks to flounder amid general market mayhem, investors could flock to gold as a safe haven."

Importers of Gold Digesting Higher Prices

coinweek.comhttp://www.coinweek.com/bullion-report/importers-of-gold-digesting-higher-prices/

By on November 12, 2012 9:40 AM

SPOT MARKET gold prices hovered just below $1738 an ounce Monday morning in London, close to three-week highs, while stocks and commodities were broadly flat and the Euro traded near two-month lows against the Dollar, as the US and Greece both contemplated upcoming fiscal difficulties.

Silver prices traded around $32.70 an ounce, also near three-week highs.
Bullion importers in India, meantime, which sees the celebration of Diwali tomorrow, slowed their purchases of gold Friday as the Rupee weakened and gold prices rose, newswire Reuters reports.

 

“Jewelry makers may have to wait before they come back to buy again,” says one physical bullion dealer in Hong Kong.

“People are digesting the rebound in prices.”

“Worries about the fiscal cliff continue to drive [international bullion market] sentiment,” says Nick Trevethan, senior metals strategist at ANZ, referring to the combination of tax rises and government spending cuts currently due in the US at the start of January.

President Obama is due to hold talks this week with labor and business leaders to try to build a consensus on avoiding the fiscal cliff.

“We are [also] seeing some signs of compromise between Democrats and Republicans,” says ANZ’s Trevethan.

“That may take some of the steam out of the upside story for gold, but the prospect of negative real interest rates and longer-term inflationary risks remain positives for bullion.”

“The lesson of Europe,” says Congressional Budget Office founding director Alice Rivlin, “is don’t wait until you’re in a crisis to act. Do it now. The other lesson is that austerity is not a good prescription for weak economies.”

Here in Europe, the Greek parliament passed its 2013 budget Monday by 167 votes to 128, less than a week after it the Greek government narrowly won a vote in favor of around €13.5 billion of austerity measures.

“Just four days ago, we voted the most sweeping reforms ever in Greece,” said Greek prime minister Antonis Samaras.

“The[se] sacrifices will be the last. Provided, of course, we implement all we have legislated.”

Greece may be unable to meet a €5 billion debt repayment that comes due this Friday. Eurozone finance ministers meet later today to discuss whether Greece should be paid the delayed next installment of its bailout funding, worth €31.5 billion.

The latest report on Greece by the so-called troika of lenders – the European Central Bank, European Commission and International Monetary Fund – has been completed, Eurozone finance ministers’ chief Jean-Claude Juncker confirmed, although there will be no decision today on whether Greece gets its funding.

“Greece has done what it was asked to do and now is the time for the creditors to make good on their commitments,” said Greek prime minister Samaras.
Greece is hoping to raise funds to cover Friday’s repayment through an auction of Treasury bills tomorrow, the Financial Times reports, although the report adds that Greek banks that would buy the debt can only raise €3.5 billion of collateral to post with the ECB in order to fund their purchases.

Japan’s economy shrank by 0.9% in the third quarter, and 3.5% year-on-year, according to provisional GDP figures published Sunday.

The Bank of Japan “is committed to continuing with aggressive monetary easing” its governor Masaaki Shirakawa said Monday.

The United States is set to become the world’s largest oil producer by 2017, largely thanks to shale production, the International Energy Agency reports.
Elsewhere in the US, the so-called speculative net long position of gold futures and options traders on the Comex – measured as the difference between bullish and bearish contracts – fell for the fourth week running in the week to last Tuesday, weekly data published Friday by the Commodity Futures Trading Commission show.

“[Gold] prices have recently been supported by official sector [central bank] buying,” London Bullion Market Association chairman David Gornall told the LBMA’s annual conference in Hong Kong this morning.

“Will the gap between the amount of gold held in reserve by the developing markets and that of the developed world close?… comparing China to the US, it would seem that in China, gold asset allocation can only go in one direction.”
“Gold plays a very important role in the formation of the financial market system,” Xie Duo, general director of China’s central bank, told the LBMA conference Monday.

“[There has been] big progress in the Chinese gold market…but there is still a long way to go.”

The Agricultural Bank of China, one of nine Chinese banks licensed to import gold, has said it plans to start trading precious metals overseas.

“We will start trading globally in the next year or two, most likely in London and New York,” said Wang Xinyou, head of precious metals at AgBank, which currently enables retail investors to buy and sell gold on the Shanghai Gold Exchange.
Ben Traynor
BullionVault