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London Gold Market Report
BOTH GOLD and physical silver prices failed to hold onto a sharp overnight
bounce in London trade on Friday, trading below $1404 and $33 respectively
per ounce as volatility in crude oil remained at record levels but world
stock markets rose for the first day in six.
The US Dollar snapped its 7-day losing streak, bouncing against the Euro,
Sterling and Yen and leaving gold prices for non-Dollar investors slightly
higher again.
Colonel Gaddafi's crackdown on anti-government protests in Libya was
"escalating alarmingly" meantime, said the United Nations, with
perhaps 1,000s dead in a near-civil war.
Food prices rallied from a four-day drop as Bangladesh and Japan both moved
to secure supplies of rice.
"[Economic] demand is now recovering at home and abroad – quite
strongly in some areas, and inflation is now a much bigger worry than
deflation," said Bank of England policy-maker Andrew Sentance in a
speech last night outlining "10 good reasons to raise".
Sentance has been out-voted 8-to-1 by his colleagues every month since he
began calling for higher rates last June.
The UK today revised its end-2010 economic decline from the 0.5% first
estimated to a 0.6% contraction.
Rumors that Colonel Gaddafi had been shot dead saw crude oil, gold and silver
prices all slump late Thursday in New York.
Commodity-trading exchanges the Nymex and ICE also raised the margin payments
needed to continue betting on oil prices – currently heading for a 13%
weekly rise, the fastest gains since Feb. 2009.
"Those declines have proven to be a good buying opportunity," said
one London metals dealer early on Friday. But by lunchtime, however, both
gold and silver prices had eased back from their sharp recoveries, cutting
their week-on-week gains to 1.0% and 0.1% respectively.
"It goes without saying, should the tension in the Middle East spiral
out of control, and spread further throughout the region, our [Gold Price]
target of $1500 may be reached must earlier than [the summer]," says
today's commodity note from Standard Bank in London.
"Gold is witnessing a strong upward trend," says Filippo Finocchi
on the trading desk at Italpreziosi in Arezzo, Italy. "But if the
tensions in Libya should ease, the current level could be ideal for a start
of a new corrective phase."
Even as near-term crude oil contracts rallied on Friday, far-dated contracts
held onto their sharp falls in early trade, suggesting "either a big
unwind or the beginnings of pessimism about sustained demand strength"
in the global energy market according to Sean Corrigan at Diapason
Commodities in Switzerland.
Prices for crude-oil contracts due to settle after 2012 were lower on Friday
morning than they were before the Middle East unrest and uprisings began,
notes the FT's Alphaville blog.
"Everyone's just being super-cautious," Reuters today quotes a
prime broker servicing the hedge-fund sector, which hasn't yet taken an
aggressive stance on the oil market.
"It's a little like the financial crisis in 2008. Many managers are
saying, 'How am I supposed to figure this one out?'", says Morten
Spenner at fund of fund managers International Asset Management.
Noting the 1.75% and 0.75% rise in Indian and Chinese interest rates in
recent months, "If monetary tightening continues across the developing
world we would expect to see physical demand for gold from emerging countries
slacken as the year progresses," says French bank Natixis' latest Commodities
Weekly report.
The London bullion dealer's analysis team also note India's new policy of
encouraging rural households to open bank accounts through mobile phones
(so-called "m-banking"), saying that "Were these policies to
continue, it would not be unreasonable to expect Indian demand for gold to
suffer."
Indian gold demand leapt two-thirds by volume and 106% by value to all-time
record levels in 2010 according to latest data from market-development group
the World Gold Council.
China's private household demand for physical gold rose 29% by volume and 62%
by Dollar value, also hitting new record highs.
Adrian
Ash
Head of Research
Bullionvault.com
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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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