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London Gold Market Report
U.S. DOLLAR gold
prices hit $1548 per ounce in Asian trading Monday – a
near-one-month high, and a 1.8% gain on last week's low – before
slipping back when London opened, while stock and commodity markets continued
to drop after Friday's disappointing US jobs data.
Silver prices hovered in a 1% range
around $36.74 per ounce.
"Speculations of a generous third
quantitative easing (QE3) package will grow" if the negative tone of US
economic news continues, reckons Swiss precious metals firm MKS.
"Expectations in the market suggest
that gold prices will benefit in the short term by the belief that
slowing growth in the US will prompt the Federal Reserve to maintain
favorable monetary conditions."
The US economy added just 54,000 jobs in
May, according to non-farm payroll data published Friday by the Bureau of
Labor statistics, compared to analysts' forecasts that ranged from 150,000 to
190,000.
"This is gold-friendly data,"
says Credit Agricole analyst Robin Bhar.
"In the worst case scenario, we
could have a double-dip in the US economy and possibly deflation, which would
also help gold."
The US economy "is not able to
stand on its own two feet...without fiscal and monetary stimulus and heavy
government support," Hans Goetti, chief
investment officer Asia at Finaport Investment
Intelligence, told Bloomberg Television on Monday.
The likelihood of QE3 "is
growing" reckons Cliff Waldman, economist at the Manufacturers
Alliance/MAPI.
"Looking at all the data [the Fed
is] going to determine we need all the help we can get."
"We don't see a QE3,"
countered Bill Gross, head of PIMCO, the world's largest bond fund, in a
radio interview on Friday. "There has been too much discussion and
dissent within the Fed to permit that type of program again...
"[But] What we do see is [the Fed]
will simply speak to a Fed funds rate that persists for an extended period of
time that in effect caps interest rates in the process."
Gross added that if the Fed funds rate
were to remain at 0.25% for three or four years, then "that allows the
three or the four year Treasury to sink close to 25 basis points, and that
does effectively the same job as quantitative easing."
Over in Europe meantime, Euro gold
prices rose to €34,035 per kilogram (€1058 per ounce) Monday
morning – a 0.5% gain on Friday's close, but still 1.3% down on where
they started last week.
The Euro meantime touched a one-month
high of $1.46 against the US Dollar – a 2.3% gain since last Wednesday
– before slipping back.
"The turning point was Greece, and
we can suggest Greece is out of the way for the short term," reckons
Kurt Magnus, Sydney-based executive director of currency sales at Nomura
Holdings, referring to news that the EU and the International Monetary Fund
have officially agreed to pay the next installment of last year's €110
billion bailout.
German newspaper Der Spiegel reported
Monday that a new aid package for Greece, currently under discussion, could
exceed €100 billion. The Greek press on Friday reported a figure of
€85 billion, while the rumored figure last Tuesday was €60
billion.
On the gold futures and
options market, meantime, the net bullish position among non-industry,
so-called speculative traders rose 5% in the week ending 31 May.
"While the jump in speculative
length seems big, the market for gold still does not look overextended,"
says Walter de Wet, commodity strategist at Standard Bank in London, noting
that, as a percentage of open interest, the two-year average position of net
speculative longs is well within its range over the period.
Pointing to US economic data,
"lower demand and slower growth favors accommodative monetary
policy," Standard Bank noted late last week.
"This benefits gold."
Ben Traynor
You
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