London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 3 July 2012, 07:30 EDT
SPOT MARKET gold prices traded close to $1610 an ounce for most of Tuesday morning in London, after breaking through the $1600 mark during the earlier Asian session.
Silver prices touched $28 an ounce for the first time in nearly two weeks, while stocks and commodities also gained after disappointing US manufacturing data led to renewed speculation that the Federal Reserve might launch a third round of quantitative easing, known as QE3.
US manufacturing activity fell last month, according to the June ISM purchasing managers index published Monday. The ISM PMI was 49.7 – down from 53.5 in May and below analysts’ consensus forecast, which was around 52. A PMI score of less than 50 indicates contraction.
“The dimmed economic outlook leads to expectations of more stimulus, which will weaken the Dollar and help metals,” says one trader in Shanghai, adding that “silver will be relatively weaker than gold due to its industrial nature.”
“Over the last few weeks US numbers have worsened a lot,” says Eugen Weinberg, head of commodity research at Commerzbank.
“This has brought about the probability of QE3 – which is probably the most important reason for the market to believe in gold.”
The Federal Reserve last month chose not to launch an additional round of QE, instead extending its bond maturity extension program Operation Twist, which aims to lower longer term interest rates by selling shorter=dated securities and buying longer-dated ones.
“We are unlikely to see a big add-on after Operation Twist was extended,” reckons Dominic Schnider at UBS Wealth Management.
“Unless things fell off the cliff. And remember, when things did fall off the cliff in 2008, gold fell as well.”
Sales of gold coins by the US Mint were down 40% in the first half of the year, compared to the same period last year, although June sales beat May’s for the first time in three years.
Over in Europe, goods prices received by producers fell 0.5% in May, according to official Eurozone producer price index data published Tuesday.
“Businessmen don’t like prices going down,” says Lord Robert Skidelsky, professor of political economy at Warwick University, speaking on BBC Radio 4 Monday on a program looking at whether a gold standard would make the financial system more stable.
“It means they produce at one price and then may have to sell at a lower price…they prefer prices to be going up [because] they reckon their profits as a markup of their costs.”
Skidelsky adds that “although [western economies have] been printing money, it hasn’t been too much money”.
The time to worry, says Skidelsky, is when prices “accelerate and the value of money collapses completely…then of course you go back to gold”.
Here in London, Bob Diamond has resigned as Barclays chief executive. Diamond has been under pressure since Barclays was fined a record £290 million last week, after the bank admitted some of its staff had sought to manipulate Libor, the London interbank offered rate used as a worldwide benchmark.
Marcus Agius, who resigned as Barclays chairman on Sunday, will now return to lead the hunt for Diamond’s successor.
Over in Asia, traders report that the rise in gold prices since the weekend has led to a fall in demand for physical bullion.
“Customers went in to pick up gold below $1560 last week, but now the market is quiet again,” one dealer in Singapore told newswire Reuters Tuesday.
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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
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 must be verified elsewhere – should you choose to act on it.
Tradervox.com (Dublin) – A report by Tempe, an Arizona-based group reported that the manufacturing in the US unexpectedly contracted in June. This is the first time a contraction has been registered since the US economy rose from recession in 2009. Most economists have indicated that the contraction is an indication of a faltering economy, which has raised speculations for third round of quantitative easing.
Tradervox.com (Dublin) – The euro has started the week on a low after increasing at the close of the week following the EU leaders’ decision to avail funds to recapitalize Spanish banks. The 17-nation currency fell prior to data to be released today shows the joblessness in the region increased to a new record. Further, another report is expected to show the region’s manufacturing contracted. There is speculation in the market that the ECB will reduce interest rate to boost growth in the region during its next rate decision meeting this week.
The SNB president Thomas Jordan in an interview to be released later that the enforcement of the currency ceiling imposed last year is appropriate to avoid deflation. He added that the bank is determined to keep the minimum exchange rate since it is the right monetary policy for the country’s economy. The remarks by the SNB President were echoed by the SNB Spokesman Walter who said the bank is doing all it can to hold the cap.
