Importers of Gold "Digesting Higher Prices" with Sentiment "Driven by Fiscal Cliff", China's Gold Market "Still Has Long Way To Go"

By: Ben Traynor, BullionVault

-- Posted Monday, 12 November 2012 | Share this article | Source: GoldSeek.com

London Gold Market Report

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

Gold "Now in Consolidation Phase", US Markets Prepare to Open Again

Gold "Now in Consolidation Phase", US Markets Prepare to Open Again



By: Ben Traynor, BullionVault

-- Posted Wednesday, 31 October 2012 | Share this article | Source: GoldSeek.com

London Gold Market Report

WHOLESALE gold bullion prices rallied to a one-week high at $1720 an ounce Wednesday morning in London, though they still looked set to record a loss on the month, while European stocks opened higher before losing some ground and US markets prepared to re-open after being closed for two days.

Silver bullion climbed to $32.37 an ounce, also up on the week, while oil and copper ticked higher and US Treasury bonds fell.

By Wednesday lunchtime in London, gold bullion looked set to record its first monthly loss since May, with spot gold trading nearly 3% below where it started October.

"There are those who are still looking for another dip, perhaps one that offers an opportunity to jump in sub-$1700, between now and year-end," says a note from UBS.

"The clear downtrend from earlier in the month has now been replaced by this consolidation phase. But the possibility of another attempt on the downside certainly cannot be ruled out."

"There are a lot of event risks [for the gold market]," one trader in Singapore told newswire Reuters this morning.

"Nonfarm payrolls, the US election, a change of power in China, plus the routine policy meetings of various central banks."

"People wonder if Romney is going to be in power and what kind of monetary policy we will have," adds UBS analyst Dominic Schnider, adding that the Republican candidate would likely replace Ben Bernanke as chairman of the Federal Reserve.

"[Romney] is clearly not in favor of what the Fed is doing."

A piece published by the Financial Times yesterday argued that a change in fed leadership following a Romney win would be bad for gold bullion prices, since the US dollar would strengthen.

"There's really no clear indication that Republican presidents are better or worse for the Dollar than the Democrats," counters a note from Standard Bank currency analyst Steve barrow this morning.

"We don't doubt that a strong Romney win, with victory in the Senate as well, would boost the Dollar while, if Obama narrowly hangs on to the presidency and loses the Senate, it would probably produce the worst possible knee-jerk response in the Dollar. However, in terms of the longevity of these reactions we'd be somewhat skeptical."

US markets are set to reopen Wednesday, following two days of closure caused by Superstorm Sandy.

"In the early trade I expect an overreaction regardless of the direction," says Art Hogan, New York-based managing director at Lazard Capital Markets.

"I expect to see a lot of volume at least in the first hour."

Wednesday marks the end of the financial year for many US mutual funds, which have been unable to trade many securities since last Friday.

"That could be the wild card, how much [trading] they have to cram in," says Donald Selkin, chief market strategist at National Securities, which manages around $3 billion.

Eurozone finance ministers meantime, who meet today, may grant Greece extra time to meet its austerity commitments, although disagreement remains on whether to write off more Greek debt, Bloomberg reports.

"The decisive phase for Greece has started," reckons Carsten Bzerski, Brussels-based senior economist at ING Group.

An earlier deal to restructure Greece's debt was agreed back in February. Losses were imposed on private sector creditors with the aim of bringing Greece's debt-to-GDP ratio down to around 120% by 2020. Since then, however, Greece has missed a series of deficit tsrgets. 

"Filling the funding gap for Greece will again require some creativity," says Bzerski.

"A possible way out, at least in the short term, could be a combination of several options, such as lowering the interest rates on the first two Greek packages and front-loading parts of the funding of the second package. This could again kick the Greek can further down the road."

Elsewhere in Europe, German retail sales rose 1.5% month-on-month in September, significantly more than many analysts forecast, although year-on-year sales were down 3.1%, official figures published Wednesday show.

The Euro rallied against the Dollar following the release.

Here in the UK, prime minister David Cameron said Wednesday he is prepared to veto a rise in the European Union's budget if he does not secure "a deal that is good for Britain."

Conservative MP Mark Reckless has put forward a motion calling for a real-terms (inflation-adjusted) cut in UK contributions to the EU, and says around 40 other Conservatives support it.

"What I hope will happen," said Reckless today, "is that the government will accept this motion and will put itself and David Cameron at the head of a united Parliament, going to Brussels to call for a cut in the budget, representing Britain, representing our constituents."

The opposition Labour party has said it will also back the amendment.

Ben Traynor

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. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(c) BullionVault 2012

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