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London Gold Market Report
THE PRICE OF
WHOLESALE "spot" gold rose further for US-Dollar investors early in
London on
Friday, adding another $5 per ounce to its best AM Gold Fix since March 23rd at $952.50.
For European investors, however, the Gold Price was little changed
on the morning – and unchanged from last Friday as the single currency
reached a four-month high on the forex market – at €682 an ounce.
Both in Euros and Dollars, gold has risen 9.5% year-to-date. For UK investors, gold today stood unchanged from New Year at
£600 an ounce.
"The Dollar in the last 24 hours is potentially doing something more
interesting here," reckons Paul Lambert, macro-strategist at London
hedge fund Polar Capital, pointing to Thursday's sell-off in both Dollars and
Wall Street stocks.
Last year, the US Dollar rose sharply on "safe haven" demand, and
it reached a near-perfect negative correlation with world stock markets
between Jan. and April '09 as the S&P index sank to 12-year lows.
"It's early days," says Lambert to Bloomberg, "but there is a
world going forward where you might have a weaker Dollar that could be
independent from the behaviour of risk."
"A weaker Dollar has seen gold make solid gains," says the latest
Fortis Metals Monthly from Virtual Metals' analysts, "but we wouldn't
bank on the US currency falling much further.
"There is much more economic optimism in the air now, as can be seen in
other commodity prices. It is not clear what impact it will have on gold.
Inflation seems a long way away and so we see Gold Prices drifting
lower."
Today world stock markets bounced from their 3% mid-week losses, while the
price of US crude oil ticked higher again above $61 per barrel.
European coal prices rose
for the fourth session running. Copper traded at the London Metal Exchange
(LME) rose 3.1% after China reported new record imports for April.
The China Daily says that
Bank of China, the world's third largest bank by market cap, will open its
first branch in resource-rich Brazil by August. The decision comes after China and Brazil signed 13
accords on bilateral trade in Beijing this week, and further discussed billing each other
directly in their own currencies, the Yuan and Real, rather than the US Dollar.
"It may take a couple of years for China and Brazil to really
start using Yuan in trade because the currency is of limited use outside China," says Shi Lei, an analyst at Bank of China in Beijing to the China Post.
"It is not going to succeed," counters Guilherme da Nobrega, chief
economist at the Sao Paulo brokerage of Itau
Banco, Latin America's biggest bank.
"If you let people choose in which currency they want to trade, they
want to trade in dollars."
Now Brazil's No.1 trading
partner, China is looking
to invest $1.2bn into a new port complex that more than doubles the capacity
at Santos
to 240 million tonnes per year.
On Wednesday a senior official at the Shanghai branch of the China Banking Regulatory Commission said the
Chinese Yuan could account for 3% or more of global foreign exchange reserves
by 2020.
The Vedomosti newspaper in Moscow meantime reports that Russia's foreign exchange stockpile is now more heavily
weighted in Euros than Dollars, with the single currency rising to 47.5% by
end-2008 against 41.5% held in the world's official reserve currency.
Only China and Russia make the top leagues for both Gold Bullion and foreign currency holdings
according to new analysis from Virtual Metals here in London.
"We must get our fiscal house in order or risk having government
borrowing crowd out productive private investment," said US Treasury
secretary Tim Geithner to a congressional panel on Thursday.
"My basic obligation is to make sure we put in place policies that
sustain confidence in this economy, in our currency, that we sustain a strong
Dollar."
Yesterday Bill Gross, chief of bond-management giant Pimco, said the United States' credit rating will "eventually" follow the UK's downgrade from stable to negative.
But "The impact of a possible downgrade on the US would be much greater
than the one on the UK because the Dollar still represents 60% of global
foreign reserves," notes Hidetoshi Honda at Mizuho Corporate in London,
speaking to Bloomberg.
"We'd expect massive outflow of dollars from foreign reserves so that is
dragging the Dollar lower."
Yesterday the federal authorities took control of Florida's largest banking institution – and the 34th
institution to be closed so far this year – BankUnited FSB.
Full-year 2008 saw a total of 25 banks fail in the United State s. Only three were closed in 2007. The
second-largest failure after IndyMac last July ($10.7bn), BankUnited FSB will
cost the Federal Deposit Insurance Corpoation (FDIC) some $4.9 billion.
The FDIC's funds were already reduced to $18.9bn by end-2008, down by two
thirds from end-07.
In California, meantime, this week's failed ballot on tax hikes and spending
cuts in California leaves the sunshine state with a budget deficit of
$21.3bn.
Struggling to close its own $17.7bn budget deficit, New York City "gave
away" almost $1.4 million of tax-payer's money in the bond market,
Bloomberg reports, by failing to get the best deals on its revolving loans as
US interest rates sank towards zero early this year.
Adrian Ash
Head of Research
Bullionvault.com
All
articles by Adrian Ash
City correspondent for The Daily
Reckoning in London, Adrian Ash is head of research at www.BullionVault.com – giving you
direct access to investment gold, vaulted in Zurich, on $3 spreads and 0.8%
dealing fees.
Current gold price, no delay
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Information or data included here may have already been overtaken by events
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