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London Gold Market Report
U.S. DOLLAR gold prices
wavered around $1830 an ounce Wednesday morning London time – 4.3% off
last week's all-time record high – as prices of major commodities fell
and stocks rose following Tuesday's publication of the latest US Federal
Reserve minutes.
Silver prices meantime traded around
$41.41 per ounce – the price at which they started the week.
The gold price at Wednesday morning's
London Fix was $1826 per ounce, with gold heading for its biggest monthly
gain since November 2009.
"The overall outlook for the
precious metals remains dominated...by uncertainty over economic growth, and
by speculation over what action policymakers might take to address the
issue," says one London gold bullion dealer.
"We expect QE3 [a possible third
round of quantitative easing] to become an increasingly dominant issue for
the markets as we enter September."
If QE3 does not happen, however, then
"we probably could expect gold prices to slide from this level,"
warns Tom Price, global commodity analyst at UBS, "[if] we see slow
improvement out of the United States, China increasing its control over
inflation and the European market not lurching lower."
In the US – where consumer
confidence has, according to official surveys, hit its lowest point in over
two years – the US Federal Reserve published the minutes of its latest
Federal Open Market Committee meeting on Tuesday.
"Some members expressed the view
that additional accommodation was warranted," said the minutes.
"They expected the unemployment
rate to remain well above, and inflation to be at or below, levels consistent
with the Committee's mandate."
The Fed has a dual mandate to ensure
stable prices and maximum employment. Though it currently has no official
target for either, the Fed has forecast long run inflation to be between 1.7%
and 2%, widely regarded as an informal target. Consumer price inflation in
July was 3.6% per year.
The FOMC voted at the meeting on August
9 to maintain its policy rate below 0.25%, announcing afterwards that it
expects its rate to stay "exceptionally low" for at least two
years.
"The odds are rising that we will
see more action to aid the economy at the September meeting," reckons
James O'Sullivan, chief economist at MF Global in New York.
US stock markets rose following
publication of the minutes, with the S&P 500 ending Tuesday up 0.2%.
Asian stock markets also rose in
Wednesday's trade, as did European stocks on Wednesday morning.
Since the start of July, however, the
FTSE 100 has lost 10.6%. The S&P is down 8.2%, the NIKKEI 225 has lost
8.8%, while the German DAX has plunged 22.6%.
"Over the summer period reality has
been dawning, with investors realizing that the recovery is not going to be
straightforward," says Richard Jeffrey, chief investment officer at Cazenove Capital Management.
By contrast, gold prices have gained
nearly 23% over the same period.
"The belief that the risk asset
classes are compromised and are not worth having is driving gold prices
up," explains Swiss precious metals refiner MKS.
Over in China meantime "gold is a
one-way market" at the moment, according to one bullion trader in Hong
Kong, where dealers report that premiums have risen as high as $1.50 an ounce
– up from $1.20 last week.
"With low interest rates and the
possibility of a third round of quantitative easing in place, people are
buying gold after prices corrected...the precious metal remains an attractive
safe haven."
"Prices came down from the peak
last week," adds a dealer in Singapore.
"This is the main cause behind the
buying."
"Physical demand is likely to be
strong in September, October and November," predicts another dealer
quoted by news agency Reuters.
Analysts and dealers also expect strong
buying from world's largest gold market India over the next three months, as
the country begins its annual festival season.
Here in Europe, Germany's cabinet on
Wednesday approved increasing the size of the European Financial Stability
Facility, the Eurozone's bailout mechanism. Germany's share of EFSF loan
guarantees will rise from €123 billion to €211 billion.
"The German government has
strengthened its determination to secure the stability of the Euro,"
said finance minister Wolfgang Schaeuble.
"I'm not against helping
Greece," countered Wolfgang Bosbach, a
fellow-member of Chancellor Merkel's CDU party.
"I just doubt that ever-higher
debts can actually help...this is a fundamental question for our children and
grandchildren, whom we're already saddling with mountains of debt –and
then we're adding huge risks on top of that."
Ben Traynor
You
can receive
your first gram of Gold free by opening an account with Bullion Vault : Click here.
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