London Gold Market Report
U.S. DOLLAR gold bullion
prices rallied to almost $1620 an ounce Monday morning London time –
0.7% off Friday's all time high – having dropped sharply as Asia
opened, while stocks and commodities rose after US President Obama announced
a last-minute debt ceiling agreement.
Silver bullion prices traded around
$39.50 per ounce – around 1% down from Friday's close.
"We see the next resistance point
[for gold] as $1670," say technical analysts at gold bullion bank Scotia
Mocatta.
"Only a move back below $1577 would
shake this bullish outlook."
"Gold will be knocked back a little
[following the debt ceiling agreement]," reckons Steven Zhu, operations
manager at Yinjian Futures in Beijing, noting
"However, problems still exist
within the economies of the US and Europe and that will keep gold's uptrend
intact."
The US Congress is due to vote Monday on
whether to raise the $14.3 trillion federal debt ceiling – after
Republican and Democrat leaders agreed a deal on cutting the deficit.
The deal would raise the debt ceiling by
around $2.1 trillion – avoiding a possible default on US Treasury bonds
– while cutting government spending by around $2.4 trillion.
The deal identifies $900 billion in
spending cuts spread over the next decade. It would also appoint a commission
to identify another $1.5 trillion in cuts by the end of November – with
automatic cuts for defense and Medicare if the committee fails to deliver.
"Talk about kicking the can down
the road," says Stephen Roach, economist at Yale University.
"This is probably the biggest can
that's ever been kicked – appointing another commission to do the heavy
lifting another day."
Press reports suggest the bill is likely
to pass the Senate, but may face opposition in the Republican-controlled
House of Representatives – where several members support the
conservative Tea Party movement.
"There's nothing in this framework
that violates our principles...it's all spending cuts," House speaker
John Boehner told fellow Republicans on Sunday.
"The cuts are not there for the
first couple of years," points out Peter Morici,
economist at the University of Maryland.
"[It] makes you wonder if they're
really going to happen at all."
"A lot of economists feel that this
is not the right time...[for] shifting from massive
stimulus to massive restraint," adds Barclays Capital US economist Troy Davig.
Though the US may avoid a default, "a
US sovereign rating downgrade is, however, likely" says Marc Ground,
commodities strategist at Standard Bank.
"[This] could limit the impending
sell-off in precious metals, and especially gold, once an agreement is
reached."
Over in China – the world's
second-largest gold bullion consumer – the Yuan hit an all-time high of
$0.1556 against the Dollar on Monday.
"It seems that the central bank
intends to take advantage of the weakening dollar to nudge its currency up
further in the short-term," says one trader in Shenzhen.
The PBoC
– which last month raised interest rates for the fifth time in less
than a year – reiterated on Monday that fighting inflation is its top
priority. Consumer price inflation rose to 6.4% in June – its highest
level since July 2008.
Barclays Capital says it expects another
quarter-of-a-percent rise in the third quarter of 2011 – while the PBoC may also continue to let the Yuan appreciate
"to tame imported inflation," says a Shanghai-based trader.
China's official purchasing manager's
index for manufacturing fell for the fourth month running in July to 50.7
– down from 50.9 the previous month. A figure above 50 implies the
sector is expanding, while one below 50 implies contraction.
The PBoC
"finds itself in a quandary" says German gold bullion refiner Heraeus in its latest Precious Metals Weekly.
"On one hand it has to fight
inflation but on the other side it cannot raise interest rates too high as
that would cramp the already slowing industrial growth."
This conflict – along with sovereign
debt concerns in the US and Europe – makes gold bullion "one of
the more preferred asset classes by investors in all the three regions of the
world...despite its already high price."
Here in Europe, Germany's manufacturing
PMI fell to a 21-month low of 52.0 – down from 54.6 in June –
while for the Eurozone as a whole manufacturing PMI dropped from 52.0 to
50.4. The Institute for Supply Management releases manufacturing index
figures for the US later on Monday.
In the UK, manufacturing PMI fell to
49.1 – implying the sector has contracted
Ben Traynor
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