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London Gold Market Report
THE U.S.
DOLLAR gold price rose to $1544 per
ounce Thursday morning – up 5.5% from May's low – while stock markets,
commodities and US Treasuries all fell after worse-than-expected US economic
news and a further ratings downgrade for Greece.
"We are still of the opinion that
the current advance will fizzle out ahead of its all-time high at $1577.60 in
the days to come," says Axel Rudolph, Commerzbank's
senior technical analyst, adding that the seasonal nature of gold price
movements means the odds favor a retracement.
"While the metal holds above $1500
we should see fresh highs above record $1577," counter technical
analysts at bullion bank Scotia Mocatta.
"[However], the inability to make
new highs will bring in sellers," they warn.
Silver prices meantime bounced from
an overnight low of $36.63 per ounce, hovering around $37.20 an ounce
Thursday lunchtime in London.
"The current accommodative stance
of US monetary policy continues to be appropriate because the unemployment
rate remains elevated and inflation is expected to remain subdued over the
medium run," said Fed vice chairman Janet Yellen
in a speech in Tokyo on Thursday.
Monetary stimulus policies have
"improved financial conditions and helped stimulate real economic
activity," added John Williams, president of the Federal Reserve Bank of
San Francisco, in a separate speech a few hours earlier.
"I think that the current
accommodative stance of monetary policy, with short-term interest rates close
to zero, is appropriate and supports the [US Federal Reserve's] dual mandate
of stable prices and maximum employment," said Federal Reserve Bank of
Cleveland president Sandra Pianalto on Wednesday.
Pianalto added that
she expects "inflation will be temporarily elevated this year", but
that it "will fall back below 2% in the next couple of years.
The policymakers' comments came after
Institute for Supply Management Manufacturing Index data for May showed a
sharper-than-expected slowdown in manufacturing growth – dropping from
60.4 to 53.5 (a result below 50 indicates contraction).
"We all expected a slowdown. The
business climate for manufacturing is starting to weaken," said Cliff
Waldman, economist at the Manufacturers Alliance/MAPI, a trade group.
"You don't want to overstate one
month, but this [slowdown] was a whopper."
"The overall effect has been to
keep QE3 [the potential third round of quantitative easing] on the
table," says a bullion dealer here in London.
"This should underline a buy dips
outlook for gold"
Elsewhere in London, the Bank of
England's Paul Fisher told the Daily Mail newspaper on Wednesday that he
"would consider" further quantitative easing if the UK economy
"did take a sudden downturn", adding that the Bank should wait for
the UK to "get over this soft patch" before raising rates.
"Would it be right to increase
interest rates and possibly risk running the economy into recession just so
we could be more certain of keeping our credibility?" asked Fisher, who
is a member of the Bank's rate-setting Monetary Policy Committee.
In the Eurozone,
meantime, ratings agency Moody's further downgraded Greek sovereign debt on
Wednesday, from B1 to Caa1. The new rating puts Greece on a par with Cuba.
"Around 50%of Caa1-rated
sovereigns, non-financial corporate and financial institutions have
consistently met their debt-service requirements. Around
50% have defaulted," said a Moody's statement.
"How much financial pressure can
the EU take and when will the rest of the crippled countries come to the
trough?" asks German precious metals group Heraeus.
Greece is currently negotiating
inspectors from the EU, International Monetary Fund and European Central Bank
over a medium term fiscal plan and possible additional financial assistance.
The parties aim to conclude talks by Friday.
"The fresh paint covering the damage
will create a short lived illusion...[but] gold and
silver will continue to benefit from this situation for the foreseeable
future," says Heraeus.
Ben Traynor
You
can receive
your first gram of Gold free by opening an account with Bullion Vault : Click here.
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