{"id":26107,"date":"2011-12-20T09:00:25","date_gmt":"2011-12-20T14:00:25","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=26107"},"modified":"2011-12-20T09:00:25","modified_gmt":"2011-12-20T14:00:25","slug":"gold-could-be-weak-but-volatile-to-end-of-year-large-scale-liquidity-required-to-restore-confidence-to-markets","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/12\/20\/gold-could-be-weak-but-volatile-to-end-of-year-large-scale-liquidity-required-to-restore-confidence-to-markets\/","title":{"rendered":"Gold “Could Be Weak but Volatile” to End of Year, “Large Scale Liquidity” Required to Restore Confidence to Markets"},"content":{"rendered":"

London Gold Market Report<\/strong>
\nfrom Ben Traynor<\/strong>
\nBullionVault<\/strong><\/a>
\nTuesday 20 December, 08:45 EST<\/strong><\/p>\n

SPOT MARKET\u00a0gold prices\u00a0climbed to $1608 an ounce Tuesday lunchtime in London \u2013 a 2.8% gain from last week’s low \u2013 while stocks and commodities traded higher, with the exception of the FTSE in London which fell lower.<\/p>\n

Silver prices\u00a0rose to $29.51 per ounce \u2013 still 0.9% down on last week’s close \u2013 while major government bond prices fell and the Euro gained amid signs of progress on the Eurozone crisis.<\/p>\n

“Liquidity in the precious metals space remains light,” warns Walter de Wet, commodities Strategist at Standard Bank.<\/p>\n

“Short-term the [precious metals] complex is likely to remain vulnerable to bouts of long liquidation amid concerns over funding levels,” agree analysts at Swiss refiner MKS.<\/p>\n

Despite this morning’s rally, gold remains around 8% down since the start of December.<\/p>\n

“Profit-taking and year-end book squaring by large investors, including mutual funds and macro hedge funds…help explain the recent drop in prices,” says a note from HSBC.<\/p>\n

“Gold prices\u00a0may stay weak but volatile for the rest of this year, we believe, as trading volume is likely to dry up in the run-up to the year-end holidays.”<\/p>\n

Eurozone finance ministers agreed Monday to lend an additional \u20ac150 billion to the International Monetary Fund. Four other European countries outside the Eurozone \u2013 Czech Republic, Denmark, Poland and Sweden \u2013 also said they will contribute extra funds.<\/p>\n

Britain meantime did not offer additional funding, but added it will “define its contribution” early next year.<\/p>\n

“The UK has always been willing to consider further resources for the IMF, but for its global role and as part of a global agreement,” said a statement from HM Treasury.<\/p>\n

Germany’s Bundesbank pledged \u20ac41.5 billion \u2013 but on condition that these funds go to the IMF’s general resources and are not earmarked for Europe, news agency Bloomberg reports.<\/p>\n

Boosting the IMF by \u20ac150 billion is “obviously a small-scale solution” says former UBS chairman Peter Kurer.<\/p>\n

“What really would be needed in the ideal world would be Eurobonds or a substitute which can bring large-scale liquidity and confidence into the markets.”<\/p>\n

Tuesday saw the beginning of the European Central Bank’s 3-Year Longer Term Refinancing Operation (LTRO), whereby banks will be able to borrow from the ECB for three years while posting distressed Eurozone government debt as collateral.<\/p>\n

“These measures address the risk that persistent financial markets tensions could affect the capacity of Euro area banks to obtain refinancing over longer horizons,” ECB president Mario Draghi told the European parliament yesterday.<\/p>\n

Draghi also confirmed that the ECB has lowered the reserve ratio \u2013 the proportion of a bank’s balance sheet it is required to hold with a central bank \u2013 from 2% to 1%, as well as expanding the list of collateral eligible for refinancing.<\/p>\n

Spain’s government saw its borrowing costs fall Tuesday morning when it auctioned \u20ac5.64 billion of short-term Treasury bills. The average yields on 3-month T-bills fell to 1.735% \u2013 down from 5.11% last month \u2013 while 6-month yields were down from 5.227% to 2.435%.<\/p>\n

“The expectation is that a lot of banks have been buying [peripheral Eurozone government debt] into the LTRO,” one trader told Reuters.<\/p>\n

“It’s going to be an interesting battle in January when we start getting big chunks of supply, but at the moment people were probably underweight their benchmarks and short Italy and Spain, and this is an opportunity for them to square positions.”<\/p>\n

Banks in the United States meantime are still vulnerable to the Eurozone crisis, despite selling most of their European government bonds, research published by the Federal Reserve Bank of San Francisco warns.<\/p>\n

“US banks have mostly shed their direct exposure to European sovereign debt,” noted San Francisco Fed research advisor Sylvain Leduc earlier this month.<\/p>\n

“But they remain subject to the risk that European trading counterparties might not be able to meet their obligations.”<\/p>\n

Over in India, gold demand remained subdued yesterday despite last week’s fall in\u00a0gold prices, newswire Reuters reports.<\/p>\n

“Consumers are not buying due to an inauspicious period,” says Ashok Jain of Mumbai jeweler Chenaji Narsinghji.<\/p>\n

“Demand will improve only after January 14,” he added, explaining that the Hindu calendar month of Khar Mass \u2013 considered an inauspicious time to\u00a0buy gold\u00a0\u2013 runs until then, having begun on December 16.<\/p>\n

Rupee\u00a0gold prices\u00a0have fallen from all-time highs hit in recent weeks, as the Rupee fell on currency markets to record lows against the Dollar.<\/p>\n

Ben Traynor<\/strong>
\nBullionVault<\/strong><\/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","protected":false},"excerpt":{"rendered":"

London Gold Market Report from Ben Traynor BullionVault Tuesday 20 December, 08:45 EST SPOT MARKET\u00a0gold prices\u00a0climbed to $1608 an ounce Tuesday lunchtime in London \u2013 a 2.8% gain from last week’s low \u2013 while stocks and commodities traded higher, with the exception of the FTSE in London which fell lower. Silver prices\u00a0rose to $29.51 per … <\/p>\n

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