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London Gold Market Report
THE PRICE to buy
gold in US Dollars oscillated Thursday morning London time –
soaring to just under $1620 an ounce before easing back – while stocks
fell and commodities were mixed as Washington prepared for a postponed debt
ceiling vote.
On Wednesday gold price set a new
intraday high in Dollar terms of $1628 per ounce in New York trade – a
jump of 1.75% from last Friday's close.
The price to buy
silver meantime hovered around $40.28 per ounce – up 0.5% on the
week.
The Euro price to buy
gold meantime rose steadily throughout Thursday morning to hit
€1133 per ounce – a 1.6% gain for the week so far.
"The so-called 'ugly competition'
between the Dollar and the Euro just seems to get uglier all the time,"
says Steve Barrow, currency analyst at Standard Bank.
"The debt ceiling still looms large
in the markets with gold finding support from the dysfunctional
discussions," adds one London bullion dealer.
The US House of Representatives is due
to vote on speaker John Boehner's deficit cutting plan on Thursday –
after it was postponed yesterday when the Congressional Budget Office found
it did not deliver the claimed spending cuts.
Many of Boehner's fellow Republicans
have expressed dissatisfaction that the plan does not go far enough, while
Democrat Harry Reid, Senate majority leader, says it will be "dead on
arrival".
Nevertheless, Reid says he may
incorporate elements of Boehner's plan into his own rival proposal.
The US Treasury has said it expects to
hit its $14.3 trillion borrowing limit next Tuesday.
"Should a default occur gold will
be vulnerable to a sharp correction as investors cut their risk exposure and
use gold to generate cash," warns Swiss precious metals group MKS.
"But as seen previously once the
initial sell-off is complete there are likely to be further upside
gains."
Even if Congress agrees to raise the
debt ceiling "America's problems would not be solved," said
Germany's finance minister Wolfgang Schaeuble on
Thursday.
"The main issue is overly high debt
and economic prospects... the Americans must find long-term solutions for
solid fiscal policy and growth."
One potential sticking point of
Boehner's plan is it would only raise the debt ceiling enough to cover a few
months of US Treasury borrowing. President Obama has repeatedly said he will
not accept any short-term deal.
"The US is experiencing an 'end of
empire' moment," says Jim Leaviss,
London-based fund manager at M&G Investments.
"The Dollar share of global
reserves is likely to fall gradually."
"Investors worldwide," says
Dick Bove, banking analyst at Rochdale
Securities, "may actually be horrified that the only safe haven at the
minute is short-term Treasuries and bank deposits backed by the FDIC [Federal
Deposit Insurance Commission]."
"The quest is on to find a new
global safe haven."
Gold bullion is not an option, Bove says, because "there is not enough of it",
while the Swiss Franc won't work either because the Swiss government
"needs to stop the inflows...to protect its economy."
Until a new safe haven is found,
investors "must protect themselves by remaining liquid," says Bove.
China meantime "will continue to
diversify the asset allocation of [its] reserve assets", according to a
statement made Thursday by the State Administration of Foreign Exchange.
"We don't pursue large-scale
reserves and don't pursue long-term surplus in international balance of
payments," added SAFE.
"Some have argued that we should
buy oil, buy gold, buy iron ore, or even buy into companies and
land," SAFE's director Yi Gang said earlier this year.
"But it is much easier said than
done."
China boasts the world's second-largest
private gold bullion demand. Using a significant portion of its $3
trillion plus reserves to buy gold or oil "could push up
market prices, which may affect our people's consumption and economic development,"
SAFE said last week.
Here in Europe, ratings agency Standard
& Poor's downgraded Greece again on Wednesday – from CCC to CC.
"Standard & Poor’s has
concluded that the proposed restructuring of Greek government debt would
amount to a selective default under our rating methodology,’" said
a statement from S&P.
"We view the proposed restructuring
as a 'distressed exchange' because, based on public statements by European
policy makers, it is likely to result in losses for commercial
creditors."
Moody's meanwhile cut its rating for
Cyprus by two notches, from A2 to Baa1. Both countries remain on negative
outlook.
Over in New York, the volume
of gold futures contracts traded on the Comex
exchange soared to 423,981 on Wednesday – a 30% jump on the day before,
and up 142% compared to Wednesday last week.
Ben Traynor
You
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