London Gold Market Report
from Ben Traynor
Tuesday 26 July, 08:20 EDT
Gold Dips, "Blank Check" Obama Fears" Deep Crisis", India Now "Hawkish" on Inflation
U.S. DOLLAR gold bullion prices fell as London opened Tuesday, but held steady for the remainder of the morning around $1610 an ounce – 0.8% of yesterday's all-time high.
Silver bullion prices were also steady, trading around $40.40 an ounce – up 0.8% from Friday's close – while stocks and commodities rallied and US Treasury bonds fell following President Obama's televised debt ceiling appeal on Monday.
"The precious metals, as with markets as a whole, look set for a busy, volatile few weeks with sovereign debt issues to remain at the front of trading sentiment," says Swiss gold bullion refiner MKS.
"As long as the markets remain in a state of uncertainty...gold prices are sure to rise," adds a note from analysts at Commerzbank.
US President Barack Obama went on television Monday to appeal for public support for a "balanced approach" to reducing the deficit.
Obama warned there would be a "deep economic crisis" if Congress does not agree to raise the $14.3 trillion federal debt ceiling – which will not happen unless agreement is reached on deficit reduction.
"If you believe we can solve this problem through compromise... let your member of Congress know."
The web pages of leading Republicans John Boehner and Michelle Bachmann displayed error messages shortly after Obama's address – suggesting they may have been overloaded with traffic.
The US Treasury says it will hit its borrowing limit on August 2 – one week from today.
"The sad truth," said Boehner "is that the president wanted a blank check six months ago, and he wants a blank check today...that is just not going to happen."
Over in Europe, Italy and Austria both cancelled bond auctions scheduled for August yesterday, the Wall Street Journal reports.
Italy's Ministry of Economy and Finance cited its "large cash availability and limited borrowing requirement" for the decision to cancel the auction of medium- and long-dated bonds. Instead, 12 month Treasury Bills will be regularly offered, it added.
Spain meantime sold €2.89 billion of 3- and 6-month bills on Tuesday. The average yield on the 3-month bills rose to a three-year high at 1.899%, while the 6-month bills sold for an average yield of 2.519% - the highest since last December.
Here in the UK meantime the British economy grew by 0.2% in the second quarter – down from 0.5% for Q1.
"The fact the economy is growing more slowly than the Bank [of England] anticipated probably means they're going to be a little bit more cautious about raising rates," reckons Peter Dixon, economist at Commerzbank.
"I would say that pretty much writes off any chance of a hike in 2011 unless we get a growth miracle towards the end of the year."
India's central bank, however, announced Tuesday it is raising interest rates. The Reserve Bank of India's repo rate – at which it lends to commercial banks – rose by half a percentage point to 8%, a larger rise than expected.
"Considering the overall growth and inflation scenario, there is a need to persevere with the anti-inflationary stance," said RBI governor Duvvuri Subbarao in his quarterly policy review.
Inflation in India – the world's largest gold bullion market – last month rose to 9.44%.
"We certainly have a far more hawkish central bank than we had six or seven months back, when there was a conscious effort to balance growth and inflation," says Abheek Barua, chief economist at India's HDFC Bank.
India has seen a sharp spike in gold jewelry sales as gold prices have risen, according to Daman Prakash, director of MNC Bullion in Chennai.
Gold mining workers in South Africa meantime are due to join other miners in strike action later this week. Mining firms including AngloGold Ashanti, Gold Fields and Harmony have offered pay rises between 7% and 9%. The National Union of Mineworkers however is holding out for a 14% pay increase.
South Africa was the world's fourth-largest gold bullion producer in 2010.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
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.