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London Gold
Market Report
THE PRICE OF
PHYSICAL GOLD pushed higher as world equities fell early Wednesday,
rising above last week's close against both the Euro and British Pound.
Recovering all but
$5 of Monday's sharp $30 drop for US investors, the Gold Price then dropped
back to $883 an ounce.
Crude oil slipped below $48 per barrel, while government bond prices rose,
taking 10-year US Treasury yields back down to 2.88% per year.
"Investors will drive the next leg of this bull market in gold, setting
a new high above $1,000 in 2009 and with a real possibility of $1,100 per
ounce," said Philip Klapwijk, chairman of GFMS, at the independent
consultancy's Gold Survey launch
here in London yesterday.
"We have seen people in Europe Buying Gold in quantities more typical of
the Middle East and Asia...particularly in Germany and Switzerland.
"Inflation is the inevitable consequence of today's rapid money-supply
growth and quantitative easing. It's extremely powerful medicine for Gold
Investment."
Today Richard Fisher, president of the Dallas Federal Reserve, told a
conference in Tokyo that the US central bank is "duty bound to apply
every tool" to avoiding deflation in the economy.
A source close to General Motors told the Reuters news-wire that the US auto-maker is about to declare bankruptcy, while German chancellor Angela Merkel
extended to €5 billion a subsidy for consumers buying new,
fuel-efficient cars.
The Wall Street Journal said that "Troubled Asset"
cash relief will be extended by the Federal Reserve to US life insurance
companies, sparking a sharp rally in their stock prices.
"We still see systemic risk in the financial system," wrote Walter
de Wet for Standard Bank's precious metals note this morning, because
"while the stimulus packages announced [at the G20 summit] last week
should assist global growth, we doubt it can cure the problems entrenched in
the financial system."
Attributing gold's failure to hold above $1,000 in Feb. to the
"astounding" flow of scrap metal, however, GFMS's Klapwijk said at
Tuesday's conference that recycled tonnage in the first three months of 2009
actually overtook new jewelry fabrication demand worldwide.
In full-year 2008,
scrap-metal flows rose 27% to more than 1,200 tonnes, surging again to reach
500 tonnes in Q1 2009.
New jewelry demand, meantime, halved to just 420 tonnes, and traditional
importers – such as world No.2, Turkey – have now become gold
exporters, Klapwijk explained.
In the industrialized West, high-margin operations such as Cash4Gold –
whose advert during this year's Superbowl featured late-80s rap star MC
Hammer – have made selling gold easier for cash-strapped consumers.
One attendee put the flow of scrap metal far higher than GFMS's figure,
dwarfing world mining output at perhaps 1,000 tonnes during the first quarter
alone. Gold-market historian Timothy Green said India last failed to import
gold during the Great Depression of the 1930s.
The sharp drop in Gold Prices during the third-quarter of 2008 actually saw
global jewelry demand surge, however, and "Gold would have fallen to
$650 or lower" without that pick-up, GFMS believes.
But it's also "a concern for the stability" of Gold Prices,
Klapwijk went on, that for the first time in many years de-hedging by Gold
Mining companies "will be running at trivial levels" in 2009.
Major gold miners sold forward a total 3,420 tonnes of their future
production by the end of the 1990s, locking in current prices for fear of
further falls as gold's two-decade bear market wore on.
Reducing that "hedge book" by Buying Gold on the open market as
prices tripled and more this decade, however, the outstanding total now owing
sits below 485 tonnes – "well below the mid-1990s level,"
according to GFMS.
That means "De-hedging is on its last legs as a source of demand,"
said Philip Klapwijk on Tuesday.
Over on the currency markets, meantime, the Euro today fell yet again vs. the
Dollar, sliding to a new one-week low of $1.3150 after Germany reported a sharper-than-expected drop in Factory Orders for February – down
38% from the same month last year.
Sterling also continued its rally against the single currency, hitting
5-week highs against the Euro on news that High Street price inflation, as
reported by the British Retail Consortium, hit 2.0% last month.
The BRC blamed the rise on "the pass-through of Sterling's depreciation
to consumer prices."
On a trade-weighted basis, the British Pound has now suffered its sharpest
devaluation since the end of the Gold Standard in autumn 1931, losing almost
one-third since this time in 2008.
Adrian Ash
Head of Research
Bullionvault.com
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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