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London Gold Market Report
THE U.S.
DOLLAR gold price continued holding
steady on Thursday morning, trading in a tight range around $1536 per ounce
– 2.6% off May's spot market record high – while stocks and
commodities rose ahead of UK and Eurozone interest rate announcements.
Silver prices gained to hit $37.23
per ounce – 2.7% up on the week so far.
"For the time being it seems that
gold ought to stay trapped between $1530 and $1550," says Swiss precious
metals group MKS.
"[Gold] is lacking any momentum for
a rally while on the other side the support at $1530 seems quite
strong."
Gains made by the gold
price on Wednesday "don't feel decisive enough" reckons one
bullion dealer here in London.
The Bank of England's Monetary Policy
Committee voted Thursday to keep interest rates on hold at 0.5%, where it has
held rates since March 2009.
The doves – those members of the
MPC who are opposed to rate rises – "have the upper hand" at
the Bank of England, said Brian Hilliard, London-based economist at Société Générale
and a former Bank of England official, speaking before the announcement.
"The market is scaling back its
rate expectations," in the face of "concerns about growth" he
added.
Across the English Channel, meantime,
the European Central Bank also voted to keep its policy rate steady, at
1.25%, its level since April this year.
Analysts on Thursday morning were
expecting ECB president Jean-Claude Trichet to use
the phrase "strong vigilance" in his afternoon press conference to
signal a rate hike next month.
"The data from the Eurozone has
held up remarkably well in recent weeks in contrast to countries like the US
and the UK," Derek Halpenny, European head of
global currency research at Bank of Tokyo-Mitsubishi told the Financial Times
on Thursday morning.
Figures published Wednesday show that
Eurozone GDP for the first quarter of the year grew 2.5% compared to the same
period last year. By comparison, the UK economy grew 0.5% over the same
period, while US data show growth at 1.8%.
Signaling a rate hike "reinforces
the credibility of the ECB, which strives to highlight...that its role is to
deliver price stability not solve the Eurozone debt crisis," said Halpenny.
"Greece is only a risk scenario for
the ECB," adds Ken Wattret, chief euro-region
economist at BNP Paribas in London.
"Assuming that the Greek problem
doesn't become systemic, the ECB will press on."
Both interest rate announcements had
little immediate impact on the gold price.
In Vienna, meantime, the Organization of
Petroleum Exporting Countries (OPEC) failed on Wednesday to agree on
production quotas, after Iran persuaded five other members to vote against
Saudi Arabia's proposal to raise output by 1.5 million barrels a day.
The five included Libya, whose
production – which stood at 1.58 million barrels a day in January
– is cut off from the world market as a result of ongoing conflict.
OPEC's failure is "bullish"
for oil prices, says Andrey Kryuchenkov,
London-based analyst at VTB Capital.
"The market remains
undersupplied."
Libyan production, which stood at nearly
1.6 million barrels a day in January, has been offline since military action
began in the country.
"Spare capacity is not what has
been portrayed by OPEC," adds Lawrence Eagles, head of energy research
at JP Morgan.
"Every OPEC member [will have to]
produce at its maximum in the next few months to ensure the oil market is
well supplied."
Over in the US, ratings agency Fitch has
joined Standard & Poor's and Moody's in warning that the country's
triple-A credit rating is at risk.
Fitch warned Wednesday that failure to
agree an increase in the federal debt limit by August 2 would "imply a
crisis of governance", and would risk the US missing payments on
Treasury notes due on August 15.
Fitch warns that if that happens, the US
would be in "restricted default", and Fitch would temporarily
downgrade its debt to junk status.
Last week Moody's said it would place
the US under review for possible downgrade if there no progress on raising
the debt limit. Standard & Poor's changed its outlook on the US rating
from "stable" to "negative" in April.
Ben Traynor
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