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Gold
Gold added 1.1 percent yesterday,
the most in a week and is up marginally today and trading within 1.3 percent
of its record nominal high of last week. Gold appears to be consolidating
above $1,200/oz and a this may be the pause that refreshes prior to new
record highs. Gold has also risen in other currencies and is back above
€1,000/oz as concerns about sovereign debt issues and economic growth
in the eurozone continue.
Gold priced in sterling appears to
be consolidating above £800/oz and the challenging fiscal and economic
situation facing the new government will likely weigh on sterling. Gold is
currently trading at $1,235/oz and in euro, GBP, CHF, and JPY terms, gold is
trading at €1,006/oz, £835/oz, CHF 1,397/oz, JPY 113,221/oz
respectively.
Oil is trading higher and near $77
a barrel and there are growing concerns about how the massive oil spill may
affect the US economy and how it might affect the future of oil production.
European investors and pensioners are concerned that the sharp fall in the
value of BP and the risk posed to the substantial dividend payments will affect
their portfolios.
Gold in EUR - 30
Day (Tick).
Gold in GBP - 30
Day (Tick).
Markets await important housing
and industrial data from the US, while the UK will release unemployment data
and the eurozone will release CPI for May.
Silver
Silver is currently trading at
$18.59/oz, €15.12/oz and £12.56/oz. Silver has risen 0.3% today
in USD and by much more in other currencies (see Cross Currency Table) and
appears to have broken out and is again looking well technically with it
having broken above $18.50/oz and showing a mini reverse head and shoulders
pattern. Whether this is another false breakout remains to be seen but
silver's fundamentals remain sound and the belief that it will begin to catch
up with gold seems sound.
Platinum Group
Metals
Platinum is trading at $1,585/oz
and palladium is currently trading at $477/oz. Rhodium is at $2,425/oz.
Cross Currency
Rates at 1030 GMT.
News
* In his latest Letter, Dennis
Gartman discusses yesterday's attempt for gold to rally based on the Greek
debt downgrade by Moody's. Not only did physical gold peter out but so did
gold-related stocks. That got people talking about a so-called "gold
bubble," and whether it's deflating. Gartman: We find it interesting that
amidst the talk of a "Bubble" in gold, Market Vane's bullish
consensus figures are... and have been... hovering at 70%. Bubbles occur when
the bullish consensus gets to 90% and above, and even then it must be there
and stay there for several weeks before corrections of consequence develop.
Bubbles don't occur at 70%. 70% bullish enthusiasm for gold is really quite
normal. Certainly it is not "Bubble-y" (Business Insider).
* To reflect its position as the
"city of gold", Dubai has launched a new edition of the
"Visions of Dubai" gold coin series here. The 24-karat gold coins
have been launched by Dubai Multi Commodities Centre (DMCC) and the World
Gold Council (WGC) and feature an image of the ruler of Dubai, Sheikh
Mohammed bin Rashid Al Maktoum, on one side and the iconic landmark Palm
Jumeirah on the other. The unique collectibles have been especially designed
to represent Dubai and reflect the emirate's position as an important hub for
gold in the Middle East region "The Visions of Dubai - Palm
edition gold coins have been created to commemorate the innovative spirit of
Dubai, and the world-class landmarks that have been established. It is a true
celebration of Dubai s status as the 'City of Gold'," Executive Chairman
of DMCC Ahmed bin Sulayem said. It will be available in various sizes at the
Dubai Duty Free outlets and leading gold retailers here."We consistently
strive to create enduring value for all stakeholders, and through our
collaboration with the DMCC and the launch of this gold coin, consumers are provided
with a practical, long-term investment opportunity," MD, WGC
India, Middle East and Turkey Ajay Mitra said. The coins come in 34 g,
17 g, 8.5 g and 1/10 oz (3.4 g) and are produced by Emirates Gold Refinery
DMCC (PTI).
* Bill Gross, manager of the world's
biggest bond fund, opted to insure debt from developed countries rather than
buy it earlier this year. Gross's Pimco Total Return Fund increased the
credit- default swaps it sold on bonds from Group of Seven nations such as
the U.S. and the U.K. to more than $3 billion in the first quarter, according
to a June 7 regulatory filing. The $228 billion fund was insuring debt from
six of the G-7 countries as of March 31, while no longer holding a $30
million contract on Italian bonds. The credit swaps enable Pimco Total Return
to earn premiums without taking the risk, frequently cited by Gross, that
rising G-7 budget deficits will fuel inflation, pushing up interest rates and
driving down bond values. Pimco said the chance of a default by countries
such as the U.S. and U.K. is diminished because they control individual
currencies with which to pay creditors, unlike Greece and other euro-zone
nations (Bloomberg).
* The sovereign-debt crisis
engulfing Greece risks spreading to Britain and the U.S. unless decisive steps
are taken to rein in their budget deficits, said former Bank of England
policy maker DeAnne Julius. "We're living in a world economy where there
are massive pools of liquidity and the tides shift and they usually shift to
target the weakest link," Julius said in a Bloomberg Television
interview in London today. "At the moment that's been Greece. They're
now looking around to see where else in Europe and the euro area it might be,
and indeed I think the risk that this economy and the U.S. faces is that
unless we get control of our debt burden we could be in line at some point as
well."
Bill Gross, manager of the world's
biggest bond fund, has grouped the U.S. and the U.K. with Greece, Spain,
Ireland and Italy in a "ring of fire," comprised of countries with
the potential for public debt to exceed 90 percent of their gross domestic
product within a few years (Bloomberg).
* Buying 500 Vietnamese taels of
gold, a large but not exceptional purchase equivalent to a little under 19
kilogrammes, takes more than 2.5 times that weight in local bank notes. For
purchases of that size, Bao Tin Minh Chau, a Hanoi gold dealer, offers
complimentary armoured car service and home deliveries.
Per dollar of income, the
Vietnamese consume more gold on average than anyone else on earth: in 2009,
more than twice as much as Indians, 10 times as much as Chinese and 44 times
as much as Americans, according to World Gold Council data. This heavy habit
is creating concerns in the corridors of power by contributing to the
country's chronic trade deficit, as most gold is imported. This in turn adds
to pressure on the dong, Vietnam's currency.
* The World Gold Council estimates
that Vietnam's net imports of gold were worth $2.3bn last year, or more than
20 per cent of the country's current account deficit. At the official
exchange rate, the dong has lost almost 11 per cent of its value against the
dollar since the beginning of last year, although it has become more stable
over the past couple of months and the black market rate indicates that it
would fall still further if the currency was allowed to float freely.
"People want to invest in gold because they believe that the dong is
overvalued," says Do Xuan Quynh, a manager at Bao Tin Minh Chau.
Gold demand dropped by 37 per cent
in 2009, partly as a result of the global slowdown and as investors sold off
holdings into a rising market. But Mr Do believes that as the economy
recovers, gold consumption could grow as much as 50 per cent this year.
"Demand is still growing
because people don't believe in any other channel of investment," Mr Do
says.
Speculative and largely
unregulated margin trading in gold grew so rapidly - trading volumes
fluctuated between $1bn and $1.5bn a day late last year, as opposed to
$200m-$500m a day on the dollar foreign exchange market - that the government
stepped in at the end of last year and ordered gold trading floors to close.
The feeding frenzy on the trading
floors is symptomatic of a country where gold holds a unique emotional and
economic significance.
Houses are frequently priced in
gold, jewellers have illuminated signs displaying buy and sell rates on their
walls - bangles and chains are sold by weight, with little if any premium for
the jewellers art - and there are an astonishing number of streetside shops
in Hanoi and Ho Chi Minh City selling safes.
In the run up to Tet, the
Vietnamese new year which fell in February and is a time of traditional
spending, Saigon Jewellery, the state-owned goldsmith that controls 40 per
cent of the market, released 30,000 taels of gold a day (1,120kg) to satisfy
demand.
Gold is effectively a parallel
currency, says Scott Robertson, a senior economist with Dragon Capital in Ho
Chi Minh. "It is a form of savings, people transact in it and it earns
interest on deposit," he says.
Many Vietnamese banks were
offering 4.5 per cent interest by weight on gold deposits last year, 300
basis points above the rate they were offering for dollar deposits, and banks
took in some $3bn worth of gold deposits in 2009, more than double what they
held the previous year.
There are no accurate surveys as
to how much gold Vietnamese hold, but Mr Robertson estimates that
"street gold", sums held outside the banking system, amounts to
about $30bn, or 29 per cent of gross domestic product, and more than triple
the volume of "street dollars".
The wars and vast political
upheavals that have ripped across Vietnamese society over the past six
decades created a disposition toward assets that are liquid, portable and
hold their value independent of bureaucrats, Mr Robertson says.
But he also says that Vietnamese
investors have become expert hedgers of their currency and of equity risks.
He points out that there was a huge spike in gold imports in mid-2008, just
before the world stumbled into the financial crisis, although he declines to
say whether he thought the move was driven by good luck or good judgment.
Dollars are popular, but have a
number of shortcomings. Many Vietnamese have lingering memories of January
1996, when the US Treasury introduced new $100 bills and local currency
dealers began refusing to accept older bills at par.
That is not the only problem.
"Dollars fall apart in a highly humid environment. They go off,"
says Mr Robertson (FT)
Mark O’Byrne
Goldcore
Mark
O'Byrne is the Managing Director of Goldcore, Ireland's Asset Diversification
and Wealth Preservation Specialist. He is regularly quoted and writes in the
financial media and was awarded Ireland’s prestigious Money Mate and
Investor Magazine Financial Analyst of 2006.
You can contact him by calling : the GoldCore
Bullion Services Team on
(Irl)+353 1 632
5010
(UK)+44 203 086 9200
(US) +1 (302)635 1160
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