{"id":30641,"date":"2012-07-04T13:36:16","date_gmt":"2012-07-04T17:36:16","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=30641"},"modified":"2012-07-04T13:36:16","modified_gmt":"2012-07-04T17:36:16","slug":"gold-helped-by-short-covering-ecb-considers-rate-cut-monetary-policy-will-push-gold-higher-next-year","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/07\/04\/gold-helped-by-short-covering-ecb-considers-rate-cut-monetary-policy-will-push-gold-higher-next-year\/","title":{"rendered":"Gold “Helped by Short Covering”, ECB Considers Rate Cut, Monetary Policy “Will Push Gold Higher Next Year”"},"content":{"rendered":"

London Gold Market Report<\/strong>
\nfrom Ben Traynor<\/strong>
\nBullionVault<\/strong><\/a>
\nWednesday 4 July 2012, 07:00 EDT<\/strong><\/p>\n

WHOLESALE MARKET gold prices\u00a0held steady around $1615 an ounce during Wednesday morning’s London trading \u2013 1.1% up on last week’s close \u2013 while stocks edged lower and the Dollar gained, amid reports that the European Central Bank is expected to cut interest rates tomorrow.<\/p>\n

A day earlier,\u00a0gold prices\u00a0rallied as high as $1624 an ounce during Tuesday’s US trading, the last trading day before today’s Independence Day holiday.<\/p>\n

“Short covering and bargain hunting helped support the rally,” says a note from Commerzbank, referring to the practice of traders who have bet on gold going lower closing their position by\u00a0buying gold\u00a0futures or options.<\/p>\n

Spot\u00a0silver prices\u00a0meantime climbed as high as $28.41 an ounce this morning \u2013 3.2% up on the week so far \u2013 as other industrial commodities edged lower.<\/p>\n

On the currency markets, the Euro fell below $1.26.<\/p>\n

“The main focus of the week is Thursday’s ECB meeting, where a rate by of 25 basis points [one quarter of a percentage point] by the ECB is expected,” says a note from Swiss bullion refiner MKS.<\/p>\n

The ECB’s main policy rate currently stands at a record low of 1% \u2013 though it remains higher than those of the Bank of England and the Federal Reserve.<\/p>\n

“The economic case for a 50 basis-point rate cut is pretty watertight,” says Ken Wattret, chief Euro-area economist at BNP Paribas.<\/p>\n

“But for now it’s easier to just cut by 25 basis points…that is enough to show you are standing ready to do something,” he adds, noting that a cut in rates would benefit banks that borrowed over \u20ac1 trillion at the ECB’s three-year longer term refinancing operations (LTROs) in February and December.<\/p>\n

Cutting interest rates would be “a bold move and will lead the ECB into uncharted territory” says Julian Callow, chief European economist at Barclays Capital in London.<\/p>\n

“With soaring unemployment and few signs of the economy recovering, some strong monetary medicine is needed. But let’s be honest, a rate cut by itself will not end the recession, we need much more for that.”<\/p>\n

The services sector of the Eurozone economy continued to contract last month, although at a slowly rate than in May, according to purchasing managers index data published Wednesday. The June Eurozone Services PMI was 47.1 \u2013 up from 46.7 in May (a figure below 50 indicates sector contraction).<\/p>\n

Germany’s Services PMI meantime fell by more than expected, from 51.8 in May to 49.9 last month.<\/p>\n

Here in London, the Bank of England is also due to announce its latest policy decision on Thursday, when it is widely expected to announce at least a further \u00a350 billion in quantitative easing asset purchases.<\/p>\n

“As everybody now expects QE the announcement effect has already happened so there will be very little negative impact [on Sterling], if any at all,” reckons Adam Cole global head of FX strategy at investment bank RBC Capital Markets.<\/p>\n

Last month’s UK Services PMI showed a bigger sector slowdown than most analysts were expecting, coming in at 51.3 \u2013 down from 53.3 in May.<\/p>\n

The front pages of British newspapers are dominated today by the appearance before the Treasury Committee of former Barclays chief executive Bob Diamond (available to watch live\u00a0at 2pm UK time), after\u00a0written evidence from Barclays\u00a0included reference to a conversation between Diamond and the Bank of England’s Paul Tucker.<\/p>\n

Tucker, the Bank’s deputy governor for financial stability and a possible replacement for Mervyn King as governor, was one of two Bank staff members\u00a0cited by the Telegraph this week\u00a0as having benefited from pension pot gains in excess of \u00a31 million over the last year, “due mainly to a fall in gilt yields”.<\/p>\n

The US economy meantime will grow at 2% this year, according to revised International Monetary Fund forecasts. The IMF also cut its 2013 growth forecast yesterday, from 2.4% to 2.25%, citing the risks posed by the so-called “fiscal cliff” \u2013 the combination of spending cuts and tax rises due to come in next January unless lawmakers agree alternative policies.<\/p>\n

“It is critical to remove the uncertainty created by the ‘fiscal cliff’,” the IMF’s report says, “as well as promptly raise the debt ceiling, pursuing a pace of deficit reduction that does not sap the economic recovery.”<\/p>\n

“No country can go on with heavy and growing debt,” added IMF managing director Christine Lagarde.<\/p>\n

“In order to bring the debt under control, action needs to be taken over a period of time…it needs to be gradual, not so contractionary that the economy stalls.”<\/p>\n

“Americas debt\/GDP [ratio] at close to 100% is not near-term threatening,” says Bill Gross, founder of world’s largest bond fund Pimco, in his\u00a0monthly Investment Outlook.<\/p>\n

“But if continued upward on trend could be absolutely debilitating….an authentic debt crisis \u2013 which the world is now experiencing \u2013 can only be ultimately cured in two ways: 1) default on it, or 2) print more money in order to inflate it away. Both 1 and 2 are poison for bond and stock holders.”<\/p>\n

Back in Europe, Deutsche Bank has cuts its gold forecast for 2012 to an average\u00a0gold price\u00a0of $1726 per ounce \u2013 down from the previous forecast of $1800 \u2013 with analysts citing the “holding pattern” they say has been adopted by central banks. Next year, however, Deutsche Bank forecasts gold will average $2050 per ounce \u2013 more than 25% higher than its current level.<\/p>\n

“While we question the effectiveness of [monetary policy] in sustainably supporting growth in the western world,” a note from Deutsche says, “we do believe that it will have the effect of pushing up\u00a0gold prices\u00a0as the metal responds to the implied erosion in value of money in Dollar terms.”<\/p>\n

Ben Traynor<\/strong><\/a>
\nBullionVault<\/strong><\/a><\/p>\n

Gold value calculator \u00a0\u00a0| \u00a0\u00a0Buy gold online at live prices<\/strong><\/a><\/p>\n

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.<\/p>\n

(c) BullionVault 2011<\/p>\n

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 \u2013 and must be verified elsewhere \u2013 should you choose to act on it.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

London Gold Market Report from Ben Traynor BullionVault Wednesday 4 July 2012, 07:00 EDT WHOLESALE MARKET gold prices\u00a0held steady around $1615 an ounce during Wednesday morning’s London trading \u2013 1.1% up on last week’s close \u2013 while stocks edged lower and the Dollar gained, amid reports that the European Central Bank is expected to cut … <\/p>\n

Continue reading “Gold “Helped by Short Covering”, ECB Considers Rate Cut, Monetary Policy “Will Push Gold Higher Next Year””<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-30641","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30641","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=30641"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/30641\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=30641"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=30641"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=30641"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}