London Gold Market Report
from Adrian Ash
Thurs 24 Jan, 07:30 EST
Traders “Bored” by Gold But Long-Term Case “Robust” as Russia Buys, Spanish Sell
PRECIOUS METALS prices fell in Asian and London trade Thursday morning, taking gold and silver to 1-week lows as commodity prices also dropped and stock markets stalled.
Shares in Apple Inc. were set to open New York trade 8% lower after the gadget giant reported weak Christmas sales.
New purchasing managers’ data today showed business activity and sentiment in China rising to a two-year high.
Markit’s PMI data also rose faster than expected everywhere in the Eurozone except France.
“The reason we are lower today [in gold and silver] is simple,” reckons Marex Spectron’s head of precious David Govett in a note.
“The market is long, the market is bored, the market is getting restless.”
Longer-term however, “The investment case for gold looks robust,” says Blackrock fund manager Evy Hambro, interviewed by The Telegraph, “with recent action by governments indicating that real interest rates are likely to remain negative in 2013, and the risk of inflation has increased.
“The behavior of central banks,” adds Hambro, “suggests gold purchases look set to continue as diversification of currency exposure remains a key focus.”
The US Federal Reserve’s policy-making team will meet next Tuesday and Wednesday, and Fed chairman Ben Bernanke “can count on [his colleagues] to endorse the current program” of quantitative easing, says Nathan Sheets, Bernanke’s senior international economics advisor for four years to 2011.
“Markets overreacted to the [Dec. meeting] minutes,” reckons Dean Maki, chief US economist in New York for Barclays. “Nothing in the minutes said the Fed is going to be anything less than supportive of the economy in the coming months.”
“[Bernanke] is going to stay the course and engage in QE,” agrees Maki’s opposite number at Bank of America-Merrill Lynch, Michelle Meyer, also quoted by Bloomberg.
Despite Sterling’s 2007-2009 drop of 25%, “yesterday we found out that one UK official, [David] Miles of the [Bank of England], believes that the Pound has not fallen far enough,” says Standard Bank’s currency strategist Steve Barrow, pointing to Wednesday’s release of UK monetary policy minutes.
Furthermore, says Barrow, yesterday’s announcement of an “in or out” UK referendum on European Union membership in 2017 “play[s] into the hands of the Sterling bears.”
Having sought a “safe haven” during the Eurozone crisis, “Some foreign direct investment and other capital flows into the UK could turn around as the crisis eases and the UK threatens to cut its ties with the EU,” Barrow warns.
Meantime at the World Economic Forum of policy-makers and business leaders in Davos, Switzerland, “We are buying gold and will continue to pursue this course,” said Russia’s first deputy chairman Alexei Ulyukayev today.
Despite hitting the 10% target set by President Putin 7 years ago for gold as a proportion of Russia’s reserve assets, “This is a course of asset diversification in a situation when investing in securities or deposits remains risky,” Ulyukayev said.
Russia’s sovereign gold reserves are now the 4th largest in the world, worth some $520 billion.
Exports of physical gold from Spain to the UK have meantime multiplied 10-fold in the last decade to €1.2 billion, a report in yesterday’s Expansion newspaper claimed, with gold pawned by cash-strapped consumers finding its way into large bars for gold investing.
“The sale of second-hand gold is raising more than a billion Euros a year for Spanish families,” the paper quotes one analyst.
Instead of heirloom jewelry, “Families here need the liquidity.”
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
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.