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London Gold
Market Report
THE PRICE OF
PHYSICAL GOLD bounced from new August lows Wednesday lunchtime in London,
trading at $945 an ounce as the US Dollar pulled back from new two-week highs
on the currency market.
Crude was little changed below $70 per barrel, while Asian stocks caught up
with yesterday's sell-off in New York. European shares gave back an early 1%
bounce as government bonds pushed higher again.
The yield offered by 10-year German Bunds fell to 3.45%.
"The market tone for Gold remains soft," says a technical analysis
from Scotia Mocatta, the London Bullion bank, "and only a move above
yesterday's intraday high [at $950 an ounce] would reverse the psychology of
the price action.
"Still, [gold] resists the urge to collapse through the 50-day average,
coming in at $941...Marginally past that point lies one-month uptrend support
at $938.63."
Over in India
– where the post-harvest festival season typically sees strong gold
demand leading to Diwali in late Oct. – the dip in Rupee Gold Prices
continues to spur re-stocking by wholesalers and jewelers, Reuters reports.
"I did around 250 kg yesterday evening," says one bank dealer in
Mumbai, "and still there is demand."
"I have a lot of orders in the range of $930-935 an ounce," another
tells the newswire.
Looking ahead to Wednesday's US policy announcement from the Federal Reserve,
however, "The markets are a bit lacklustre now and traders are probably
focused on the key interest rate decision later tonight for more
direction," reckons Adrian Koh at Phillip Futures in Singapore.
"Gold is very much trading within a band of $920-$980."
On the data front today, the UK
reported a 14-year high in unemployment, with 573,000 people – some 2%
of the working population – losing their jobs since New Year.
The level of GDP has dropped some 6% from its peak, adds the Bank of England
in today's Quarterly
Inflation Report. Manufacturing output has dropped over 10% from
a year ago.
"Given the depth of the recession," the Bank says, "to erode
the margin of spare capacity that has been created will require an extended
period of robust growth. [But] recovery could be slow and protracted."
Last week, the Bank of England surprised market analysts and traders by
extending its Quantitative Easing program by 40% to £175 billion ($287bn),
buying government gilts and corporate bonds in the open market in a bid to
give banks and other lenders more cash and credit.
In response, however – and despite the base interest rate now standing
at an historic low of 0.5% – lenders are making a record profit on new
loans, says Michael Saunders at Citigroup, earning a full 2.0% extra on
fixed-rate home loans than they're currently paying savers in interest.
Before the financial crisis broke in August 2007, that profit margin stood at
just 0.1%, reports The
Daily Telegraph. Over the last six months, meanwhile, the Bank of
England "has monetized 60% of public spending" via its Quantitative
Easing – a.k.a. money printing – notes Martin Hutchinson at Prudent Bear.
"That's a higher level than the 50% monetization of public spending
undertaken by the Weimar Republic in 1919-23 and the result will be the
same" – hyperinflation as confidence in the currency collapses.
Of the US government's deficit, "It is astonishing," says Keynesian
economist Brad De Long.
"Between last summer and the end of this year the US Treasury will
expand its marketable debt liabilities by $2.5 trillion."
That's equal to more than one-fifth of all US equities, notes the Berkeley
professor, and equal to 8% of all traded Dollar-denominated securities.
"And yet the market has swallowed it all without a burp," he says,
citing Tuesday's successful auction of 3-year US Treasury debt, which drew
bids for 2.89 times as much debt as was on offer.
With many foreign buyers, particularly the Chinese, "shifting to the
shorter end of the curve from the longer end," counters Peter Bookvar at
the Big Picture, "the tough part though comes [today] when the 10-year
benchmark note auction takes place, with the 30-year following on
Thursday."
A poor result could hurt the Dollar and send US Gold Prices higher, notes
Walter de Wet at Standard Bank. "Over the past few days, a slide in
Treasuries has resulted in Dollar weakness," he says, adding that the
Federal Reserve is "unlikely to raise interest rates" at today's
meeting today, "but might shed some light on its own Quantitative
Easing.
Already $250 billion through its planned $300bn purchase of bonds with
newly-created money, the Fed's QE program may "nearly [have] come to an
end," says de Wet. But a surprise extension – such as the Bank of
England announced last week – could give "strong support" to
Gold, silver and platinum.
"When the BoE announced resuming its QE programme last week, gold jumped
almost $10. If the Fed follows suit, we expect a bigger jump in the Gold
Price."
Adrian
Ash
Head of Research
Bullionvault.com
Also
by Adrian Ash
City correspondent
for The Daily Reckoning in London, Adrian Ash is head of research at BullionVault.com –
giving you direct access to investment gold, vaulted in Zurich, on $3 spreads
and 0.8% dealing fees.
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.
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