London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 25 January 2012, 08:30 EST
SPOT MARKET gold bullion prices dropped to $1653 an ounce Wednesday morning London time – down 1.7% from Monday’s high – while stock markets, commodities and the Euro all slid and US Treasuries gained after the head of the International Monetary Fund suggested the European Central Bank could take losses on its Greek bond holdings.
Silver bullion fell to $31.67 – down 1.8% for the week so far.
“On the weekly chart, gold is still respecting the uptrend off the October 2008 low, with key support at $1550,” says the latest report from technical analysts at gold bullion bank Scotia Mocatta.
“If the level of Greek debt held by the private sector is not sufficiently renegotiated,” IMF managing director Christine Lagarde said this morning,” then public sector holders of Greek debt should also participate in the efforts.”
The ECB – which started buying Greek bonds in May 2010 when the crisis first escalated – remains opposed to seeing its holdings of Greek debt restructured, according to newswire Bloomberg, which cited anonymous sources.
“Once again, policy makers leave the room and hope the ECB will fill in,” says Thomas Costerg, London-based European economist at Standard Chartered.
“The risk is that by putting the ECB on board, as the IMF asks, this could result in debt swap negotiations restarting from scratch, which could mean additional delay to an already over-stretched timetable.”
Debt restructuring formed part of an agreement reached last October to give Greece a second bailout worth €130 billion – without which it will be unable to pay maturing bonds worth €14.5 billion on March 20.
Over the course of Wednesday morning the Euro handed back all of this week’s gains against the Dollar.
In thin trade reflecting the absence of Far Eastern players during the Lunar New Year Week, Dollar gold bullion prices were down 0.8% for the week by Wednesday lunchtime.
“In the absence of sustained physical interest, gold is prone to a little more downside this week as bullion continues trading with global risk sentiment,” says VTB Capital analyst Andrey Kryuchenkov, adding that the US Federal Reserve looks “set to remain accommodative for now which is, as ever, gold-beneficial in the long run.”
“The Fed’s stance should continue to support gold,” agrees Marc Ground, commodities strategist at Standard Bank.
“Fundamentally, we believe that the long-term causal drivers of gold are global liquidity (defined as the Fed’s Balance Sheet plus FX reserve holdings) and real interest rates.”
The Fed will announce its latest interest rate decision later today, and is widely expected to leave its target federal funds rate within the range 0% to 0.25%. In addition, it will publish for the first time Federal Open Market Committee members’ projections for the appropriate target rate over the next few years.
“We expect the rate guidance in the policy statement to move the timetable for current accommodation well beyond mid-2013 and into 2014,” says a report from Citigroup fixed-income strategists Peter Goves and Nishay Patel.
US president Barack Obama yesterday outlined his “Buffett rule” for tax reform, which takes its name from the billionaire Berkshire Hathaway chief executive Warren Buffett.
“If you make more than $1 million a year,” Obama said, “you should not pay less than 30% in taxes.”
Obama’s address came days after Republican presidential candidate Mitt Romney disclosed that he paid 13.9% income taxes on $21.6 million of earnings in 2010. Romney disclosed his tax returns following criticism from his rival for the Republican nomination Newt Gingrich.
The UK economy meantime declined by 0.2% in the fourth quarter of 2011, official data published Wednesday show. Were the economy to shrink for a second consecutive quarter, Britain would be back in technical recession.
“[A negative growth rate]gives additional ammunition to those at the Bank of England who want to do more quantitative easing sooner rather than later,” reckons Peter Dixon, London-based global equities economist at Commerzbank, adding that the news “gives some more credence to the idea they will move in February.”
The Bank’s Monetary Policy Committee will make its next policy announcement on February 9.
“With inflation falling back and wage growth subdued, there is scope for interest rates to remain low, and, if necessary, for further asset purchases,” said Bank of England governor Mervyn King Tuesday, referring to the possibility of further quantitative easing.
The news that Britain’s economy had shrunk came a day after it was revealed that net public debt has breached £1 trillion for the first time in history.
The Bank of England’s latest survey of business conditions meantime shows spending, hiring, exports growth, borrowing and investment all weakening at the start of 2012.
Inflation in the cost of labor and raw materials eased slightly. But annual inflation in the price of imports “remained elevated” says the Bank’s summary for January.
While the Pound has stayed relatively steady against the Dollar and Euro over the last 12 months, the Sterling price of gold bullion is up more than 25% compared to this time last year.
Importers of gold bullion in India meantime are delaying buying gold following last week’s decision by the government to switch to a 2% ad valorem import tax – as opposed to the previous flat rate by weight – the Wall Street Journal reports.
Since the new tax is calculated by value, importers who delay will benefit if the price of gold subsequently falls.
High profile investor Dennis Gartman has said that while the gold bull market “is probably still extant”, he is now “neutral” on the prospects for gold bullion.
Ben Traynor
BullionVault
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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.
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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.
data, durable goods orders and for that matter, probably even next week’s NFPs) will not significantly alter the larger consensus trend. The exception is the first reading of 4Q GDP. This figure can confirm or deny the market consensus, and catching market participants off guard on a big theme like this is a rare enough event that its impact is leveraged. Tapping the more elemental consideration of risk/reward, the FOMC decision could also be a market mover as it will offer a better framework for further stimulus and the eventual withdrawal of easy money. This particular meeting is a unique event as they will start producing interest rate forecasts along with their updates on growth and policy bearings. These are the known and definitive considerations. Real impact potential though comes from the unknown – speculation of QE3 and progress on the most recent ‘hope revival’ for the euro.
