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London Gold Market Report
THE PRICE OF GOLD slipped $8 an ounce
from its best level since June 12th in London on Thursday, dropping back from $957 as European stock
markets struggled near break-even but US stocks began the day higher.
"We will hold our Buy Gold strategy while it continues to close above
key pivot 943," says a technical note from Scotia Mocatta.
"You must watch oil closely at the moment," reckons Phil Smith at
Reuters Technical India. "Its recent consolidation is having an impact
on gold in terms of short-term price movements."
Playing the role of "risk-asset" once again in July – rising
with commodities, non-US currencies, equities and bonds as it did between
2003 and start-2008 – gold had very nearly matched the US stock-market's
3.1% gain so far this month.
At Wednesday's New York
close, the rolling one-month correlation of daily Gold Prices with US stocks
averaged +0.85 for July-to-date. A perfect correlation would stand at +1.0.
Gold's correlation with the S&P sank to minus 0.84 in late February, the second time it touched $1,000 an ounce. Over the five years starting Jan.
2003, monthly changes in the Gold Price showed a correlation of +0.62 with
the S&P.
Gold rose 171% during that time. US stocks added 51%.
"Gold Prices are now at par with the S&P500 around the 954
level," wrote Ashraf Laidi at CMC markets here in London on Thursday morning. That put the S&P index measured
against gold "at its highest since May."
Last November, the gold price in Dollars crossed above the S&P's value
for the first time in 18 years. It had closed above New York's major stock index every day since then.
"The only viable means for the equity/gold ratio to regain its 2008
highs [where the S&P reached 1.10 times the gold price] would be for the
Fed to begin withdrawing liquidity without upsetting equity markets,"
says Laidi.
"[So] with the Fed showing no sign of drawing down its liquidity
injections any time soon, gold's robustness is likely to continue."
Fed chairman Ben Bernanke yesterday stressed the options available for
withdrawing "excess liquidity" once economic recovery takes hold. But
with US interest rates already at zero and the Fed effectively printing $760
billion for quantitative easing, "No wonder Mr.Bernanke likes to discuss
his options for tightening monetary policy," says the Economist magazine.
"They are better than his options for [further] easing."
On a quiet day for economic releases, new US jobless claims for last week came in higher than expected at the US opening on Thursday.
Government bond prices rallied, pushing 10-year US Treasury yields down to
3.54%, while the Dollar also bounced.
For UK investors looking to Buy Gold, the spot price slipped
0.7% from Wednesday's 6-week high of £581 an ounce.
The Gold Price in Euros was little changed at €669 – up 2.9% from
the 3-month low of early July.
"We have been tracking the physical market closely," says Walter de
Wet in today's Commodities Daily
from Standard Bank in London, and "Since the start of June physical buying has
supported the Gold Price.
"However, we now believe this support has turned into resistance and
there is more scrap selling."
Global scrap-gold supplies were estimated as high as 1,000 tonnes between
Jan. and April, equal to 40% of annual Gold Mining output, but are
widely reported as falling sharply since then.
This week US scrap-gold
service Cash4Gold announced its expansion into several key European markets,
aiming to become the UK's biggest direct-response advertiser by Christmas.
As yet, however, it has no UK marketing agency, says MarketingDirect. "It needs to hit the ground quickly."
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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