Wednesday, July 13, 2011

London Gold Market Report - 13 July 2011

London Gold Market Report
from Ben Traynor
Wednesday 13 July, 2011


Gold Hits New Dollar, Euro and Sterling Records, Fed May Consider QE3  

PRICES to buy gold set a new record intraday high Wednesday lunchtime in London at $1577.73 per ounce – slightly above May's previous all-time high – having soared overnight after publication of Federal Reserve minutes hinted at a third round of quantitative easing.

Silver prices meanwhile rose to $37 per ounce – still 25% of their April peak – while stocks and commodities were flat following a sustained battering over the last three days.

Prices to buy gold also set a clean sweep of new records at Wednesday morning's London Fix – in Dollars, Euros and Sterling.

The Sterling Fix price to Buy gold was £984.71 per ounce, while the Euro gold price was €1114.62.

"Once a new all-time high has been made, the psychological $1600 region...will be on the map," wrote Axel Rudolph, senior technical analyst at Commerzbank, on Tuesday.

"Gold can easily reach $1600 in the next one or two months," adds Li Fang, analyst at Zhonghui Futures in Shanxi, China.

"Gold is trading at elevated levels even though we are in a weak demand season. When physical buyers come back in the fourth quarter, we fully expect prices to push even higher."

The price to buy gold jumped 1.1% in one hour following the publication of last month's Federal Open Market Committee minutes on Tuesday.

"Depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus," said the minutes, suggesting the Fed may consider a third round of quantitative easing, dubbed QE3.

The Fed minutes also noted that the Greek debt crisis "could cause significant financial strains in the United States".

"US money market mutual funds have significant exposures to financial institutions from core European countries, which, in turn, have substantial exposures to Greek sovereign debt."

Also in Washington Tuesday – where Fed chairman Bernanke is due to testify to Congress on Wednesday and Thursday – there was again little visible progress in the US debt ceiling debate.

"I have little question that as long as this president is in the Oval Office, a real solution is probably unattainable," said Senate minority leader Mitch McConnell, a Republican.

Over in Europe, Italian prime minister Silvio Berlusconi appealed for national unity on Tuesday, calling for "sacrifices" to reduce that country's national debt – currently worth around 120% of Italy's gross domestic product.

"We have to eliminate any doubts over the efficacy and credibility of our budget."

Lawmakers in Rome hope to pass a three-year, €40 billion austerity package by Friday, ahead of a potential emergency meeting of European Union leaders.

Passing the budget by then "would be a record in Italian history", opposition leader Enrico Letta told the Financial Times.

The yield on 10-Year Italian government bonds breached 6% on Tuesday.

"The solvency of sovereign states is no longer to be taken for granted," Mario Draghi – who will take over as European Central Bank president in November – said on Wednesday.

"[It] has to be earned in the field with high and sustainable growth, which is only possible with public accounts in order." 

Ratings agency Moody's downgraded Ireland's government bonds to junk status on Tuesday evening.

The EU and the International Monetary Fund last year bailed out Ireland to the tune of €85 billion.
"Europe has failed to get ahead of the crisis," Mohamed El-Erian, chief executive of world's largest bond fund PIMCO, told CNN on Wednesday.

El-Erian said the behavior of bank depositors was now "the key thing to watch".

"What ultimately creates a crisis that you can't bring back is when depositors run on the banks," he said, adding that while Greek savers have made withdrawals, these have not been especially large. "[But] people aren't patient forever," he warned.

Meantime in China – the world's second-largest gold market – GDP in the second quarter of 2011 was up 9.5% from a year earlier, according to official figures published Wednesday. 

"This data should dispel concerns over a hard landing in China," reckons Wendy Liu, analyst at Royal Bank of Scotland in Hong Kong.

"I can't see any reason for gold to stop being bullish," one trader in Singapore told Reuters Wednesday. 

"Bullish and bearish economic conditions both lead to plausible argument to buy gold."

Ben Traynor
 



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.