London Gold Market Report
from Adrian Ash, BullionVault
Thursday, 4 July 09:15 EST
Central Banks Push Gold Higher, But “Investor Sentiment Negative”
GOLD PRICES held steady in Dollars on Thursday in London, trading around $1250 per ounce as US markets were closed for Independence Day.
European stock markets rose sharply however, and the gold price for both UK and Euro investors rose over 1.0%, as the European Central Bank and Bank of England kept their interest rates at record-low levels.
Commodity prices rose overall, while silver prices were little changed in Dollar terms at $19.58 per ounce.
Weaker Eurozone bonds meantime recovered from this week’s drop, easing interest rates back slightly from multi-month highs.
“The physical market for gold remains firmly in buying mode,” says Marc Ground at bullion dealers Standard Bank in London, “providing a strong element of support in the absence of investor participation.
“Amid the current negative investor sentiment” towards gold however, “we don’t think that that physical buying alone could push prices significantly and sustainably higher,” says Ground.
Central-bank gold bullion buying continued in May, new data compiled by the World Gold Council show, but the pace slipped to an 8-month low beneath 30 tonnes.
Gold coin sales by Australia’s Perth Mint meantime halved last month from May, despite the sharp drop in prices, matching only 42% of sales in April – the previous crash in world gold prices.
US Mint gold coins sales last month fell to 27% of April’s level, Bloomberg notes.
“With disinflation, even deflationary tendencies, we don’t need that insurance any more,” said Dominic Schnider, head of UBS bank’s commodities research in Singapore told the newswire overnight.
“People are thinking the era of QE in the US is over, and so [they're] going to get out.”
Gold bullion outflows from the SPDR Gold Trust – the world’s largest exchange-traded gold fund, and the world’s biggest ETF bar none at 2011’s value peak – totaled 381 tonnes in the second quarter alone.
That’s equal, notes CIMB Research in Kuala Lumpa, to 122% of 2012’s entire gold bar and coin demand from India, the world’s largest gold consumer market.
“There is no demand at all and there are no supplies,” said one Mumbai wholesale gold dealer to Reuters this morning, commenting on the typically quiet summer season as well as the government’s recent curbs on new gold imports.
The Rupee fell again to a new record-low against the US Dollar yesterday, prompting investors to send bond prices lower – and interest rates up – on fears of inflation according to newswire reports.
Latest data on Wednesday also showed inflation in Turkey – the world’s fourth-largest gold consumer market – rising to 8.3% in June, a 9-month high.
With demonstrations continuing against what some call the “creeping Islamisation” of Turkish law under AKP prime minister Recep Tayyip Erdogan, Turkey’s government bond yields rose this week to 7.8% on two-year debt, the Wall Street Journal notes, up from 4.6% less than two months ago.
The Turkish Lira has meantime lost 10% against the US Dollar since the start of this year, capping the drop in gold bullion prices for Turkish investors.
Earlier this week Turkey’s central bank – now holding the official sector’s 13th largest gold reserves, up from 26th place in 2011 thanks to a policy of accepting gold bullion from commercial banks – injected funds into the domestic money market in a bid to reduce interest rates.
“The jump in Portuguese yields is reminiscent of previous euro-zone crises,” notes HSBC precious metals analyst James Steel, “which proved to be very positive for gold.”
Portuguese bond prices edged higher on Thursday, nudging yields lower from yesterday’s 7-month high above comparable German Bund rates.
“With the European Central Bank refusing to ease monetary policy enough,” says Standard Bank FX strategist Steven Barrow, “and with the OMT [bond-buying program] not the bazooka that it’s made out to be, the scope for the Euro to slide and bond spreads to widen is significant.”
Following the ECB’s announcement, the Euro currency fell hard during ECB president Draghi’s monthly press conference.
The policy team “discussed extensively” the idea of cutting interest rates, he said, from their current 0.5%.
The British Pound also dropped hard, down nearly 2¢ to a 5-week low, after the first policy meeting under new Bank of England boss Mark Carney ended with a warning to investors that the recent rise in UK gilt yields “was not warranted by developments in the domestic economy.”
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.
(c) BullionVault 2013
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