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London Gold Market Report
SPOT MARKET prices
for gold bullion continued to fall Wednesday morning, dropping to
$1533 per ounce – a 0.6% loss on the week – while stocks and
commodities also fell and US Treasuries rose following Tuesday's speech by
Federal Reserve chairman Ben Bernanke.
Silver prices also fell, falling to
$36.17 per ounce – a few cents below where they started the week
– as the single Euro currency touched new one-month highs near $1.47
despite fresh political wrangling over the latest Greek deficit crisis.
"[Gold] will fizzle out ahead of
the all-time high at $1577.60," reckons Axel Rudolph, senior technical
analyst at Commerzbank.
"The gold price [should
then] retest the 2011 uptrend line at $1503.27 within a few weeks."
"We see risk of another move
higher," counter technical analysts at bullion bank Scotia Mocatta, who see a "measured move" to $1599
should gold break through last month's all-time high.
"[Gold] continues to be boosted by
pockets of investment demand as investors diversify their portfolios,"
says Swiss precious metals firm MKS, but risk appetite will be "mixed in
the short term.
"The precious complex is set to
remain volatile [with] bouts of liquidation" if stock-market prices
continue to fall, MKS says.
Speaking on Tuesday to the American
Bankers Association, "The economy is still producing at levels well
below its potential," US Federal Reserve chairman Ben Bernanke said,
describing the recovery as "frustratingly slow".
"Consequently, accommodative
monetary policies are still needed."
Bernanke's implication was that "a
third round of quantitative easing (QE) is not likely to come," reckons
Sung Won Sohn, economics professor at California
State University. "There's no need to change at this point."
But while Bernanke did not mention
additional monetary stimulus, he did warn of the dangers of aggressive fiscal
tightening, calling it "self-defeating" if Washington caps its
spending and raises taxes "in the very near term."
"We doubt that global government
borrowing will decline soon. We therefore believe that global liquidity will
grind higher – and so will the gold price," says Standard
Bank commodity strategist Walter de Wet.
"A refusal to expand the balance
sheet further [with QE3] shouldn't end gold's push higher."
Meantime in the 17-nation Eurozone,
"Any additional financial support for Greece has to involve a fair
burden sharing between taxpayers and private investors," writes German
finance minister Wolfgang Schauble in a letter
– dated Monday and leaked to the press on Wednesday – sent to
officials at the International Monetary Fund, European Central Bank and
Eurozone ministers.
"Imposing haircuts on private
investors can seriously disrupt the financial and real economy of both the
debtor and creditor countries," countered ECB executive board member
Lorenzo Bini Smaghi on
Monday, in a speech given in Berlin.
"It ultimately damages the
taxpayers of both the creditor and debtor country... such restructuring
should only be the last resort."
Schauble's letter also
states that the Eurozone project – launched in 1999 – now faces a
"real risk" of its first default.
Earlier this week ECB president Jean-Claude
Trichet said that encouraging private investors to
roll over maturing Greek debt would be considered "appropriate".
But "If the rollover has a coercive
element to it, does that itself constitute an element of default?" asks
a gold bullion dealer here in London.
"We find it worrying that some
rating agencies believe a debt rollover in Greece could count as a default
[as] the ECB says it won't accept defaulted Greek bonds as collateral,"
adds Standard Bank currency strategist Steve Barrow.
Ben Traynor
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