London Gold Market Report

The PRICE of GOLD held onto most of yesterday's $15 jump at $1676 per ounce Thursday morning in London, ticking back as Asian and European stock markets fell after Wednesday's surprise drop in US economic output figures.

Silver also eased back, but held at 1-week highs above $32 per ounce after rising yesterday in gold's "slipstream" as one bullion-bank analyst put it.

"This Friday's [non-farm US payroll] report remains crucial," says a note from Swiss bank UBS – currently encouraging its institutional clients to buy gold outright rather than as a credit-risk deposit.

"Some adjustments to [gold] positioning are likely to emerge" after Wednesday's 'no change' decision from the US Federal Reserve on zero interest rates and quantitative easing.

"But overall, the gold market should resume subdued trading," says UBS, "as is typical ahead of a key event" such as the monthly jobs report.

Russia's foreign ministry meantime condemned a reported Israeli air-strike on a military research unit inside Syria, saying Thursday that – if confirmed – this "unprovoked attack [would] blatantly violate the UN Charter."

Shares in Italy's struggling Banca Monte dei Paschi di Siena – founded in 1472 – steadied as the Italian central bank weighed MPS's second bail-out request in four years after it hid losses of €500 million on a 2008 derivatives deal.

German banking giant Deutsche Bank lost €2.2bn ($3.0bn) for the last 3 months of 2012, it said today.

"A year ago, the mood in Europe was horrible and nobody could see how on earth stocks could go up," says Gloom, Boom & Doom author and money-manager Marc Faber, who urged CNBC anchor Maria Bartiromo to buy gold earlier this week.

"Now since May 2012, less than a year ago, Portugal, Spain, Italy, France, are up between 30 and 40% and Greece has doubled...!"

Factory-gate prices across France and Italy fell in December from November, new data showed today.

House prices in the year to October fell 2.5% across the 17-nation Eurozone, with Spain's home-price drop accelerating to 15.2%.

"For the first time in four years," Faber continued Wednesday, pointing to the US stock market, "since the lows in March 2009, I love this market. Because the higher it goes the more likely we will have a nice crash, a big time crash.

"You are in great danger if you don't own any gold," Faber had earlier told Bartiromo.

Near-term, reckons Deutsche Bank analyst Xiao Fu – and despite Wednesday's $15 rise on poor US growth data and the Federal Reserve's no-change decision on zero rates and QE – "Gold lacks a convincing catalyst near term to take it convincingly higher and instead remains susceptible to opportunistic selling."

But "Any thought given to reining in some of the Fed's buying power will now be shelved," counters Ed Meir in his daily note for INTL FCStone.

"[Wednesday's] GDP number clearly shows that the US economy is still far from capable to muster its own momentum without key fiscal and monetary stimulus.

"In the least, this should provide an element of support to the precious metals group, at least over the short term."

After creating and spending first $1.4 trillion on mortgage and Treasury bonds in 2008, and then a further $600 of T-bonds starting in 2010, the US Fed will likely acquire a further $1.1 trillion of US government debt with its current program of quantitative easing, according to a Bloomberg survey of analysts.

"Given the sluggish [US] economy," says precious metals strategist Eugen Weinberg at Commerzbank, "it would be premature to discuss [the Fed] abandoning the quantitative easing programme.

"Despite the noticeably higher risk appetite displayed by market players of late, gold demand is thus unlikely to ebb away completely. On the contrary, high sales of US gold coins in January, and renewed inflows into the gold ETFs recently, point to relatively robust demand for gold."

Over in India – most likely the world's #2 gold consumer market in 2012 behind China – the economic affairs secretary contradicted the finance minister yesterday over plans to raise gold import duties again, in a bid to curb household appetite to buy gold, widely blamed for India's yawning trade deficit.

Two days after Palaniappan Chidambaram told the Financial Times that New Delhi is considering "some other steps to moderate the import of gold" further, Arvind Mayaram told Reuters that "I don't think there is any plan as of now."

Adrian Ash

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

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