London Gold Market Report
from Ben Traynor
Thursday 9 August 2012
WHOLESALE MARKET prices to buy gold bullion hovered in a tight range around $1615 an ounce for much of Thursday morning in London – marginally above where they started the week – before dipping slightly around lunchtime, while stock markets also edged lower following gains earlier in the week.
"Gold seems to have gotten a foothold above the $1600 level and seems to be relatively stable," says Robin Bhar at Societe Generale
"It's still showing this correlation to riskier assets. We've seen a bit of a rally in the oil market and equities, and gold has kept a par with those moves."
Prices to buy silver also ticked lower towards the end of Thursday morning, dipping to $28.04 per ounce, while other commodities were broadly flat.
"Like gold, silver is showing no trend momentum," says technical analysts at bullion bank Scotia Mocatta.
"We continue to watch the $28.40 level on the upside and $27 on the downside."
Chinese consumer inflation continued to fall last month, dropping to 1.8% – down from 2.2% in June – according to official consumer price index (CPI) data published Thursday.
Producer price inflation fell further into negative deflationary territory, while industrial production and retail sales growth both slowed.
With inflation falling and the economy showing signs of slowdown, "the numbers confirm that the door for more monetary easing is open," reckons Dariusz Kowalczyk, economist at Credit Agricole.
"[However], we expected CPI inflation rise from now on, reaching 3.8% at year end."
"Any relaxation of monetary policy is likely to be very positive for gold," adds Nomura analyst Saeed Amen in London.
"Gold isn't fully pricing in further easing."
Over in India, which lost its position as the world's biggest gold buying nation to China in the six months to March, jewelers are finding that some consumers are opting to buy gold in less quantity, purchasing smaller items of gold jewelry, Mineweb reports.
"People do make their annual jewelry purchases at this time," says precious metal retailer Madhukar Jha.
"Marriage season will soon be here and the high gold price will not stop purchases."
As the Rupee has fallen on currency markets, the Rupee price to buy gold has continued to set records this year, despite the wholesale market Dollar price retreating from last September's $1920 per ounce high.
India's new finance minister Palaniappan Chidambaram meantime described gold bullion as "not a productive asset" earlier this week, as he laid out his plans to boost investment and the economy.
"In 2007-08, savings touched 36% of GDP. It is now down to 32% of GDP," Chidambaram said.
"One of the reasons may be a perceived lack of attractive investment opportunities and instruments.
Hence the attraction of gold, but gold is not a productive asset and the demand for gold worsens the current account deficit."
Chidambaram added that government policies will be announced "to attract more people to invest in mutual funds, insurance policies and other well-designed instruments".
Pranab Mukherjee, Chidambaram's predecessor as finance minister and now India's president, argued in June that Indians should invest in "wealth generating" assets rather than buy gold.
Mukherjee twice raised import duties on bullion in the first half of the year, as well as gold sales taxes, sparking a three-week strike by many of India's gold jewelers.
Here in London, Standard Chartered is seeking legal advice over whether it can take action against the New York State Department of Financial Services, after the regulator accused the bank of being a "rogue institution" over dealings with Iran.
"Our reputation has been damaged," Standard Chartered chief executive Peter Sands told the Financial Times.
"It's not worth pretending that isn't the case."
Shares in Standard Chartered were the FTSE's biggest gainers during Thursday morning's trading, regaining some ground after falling sharply following the DFS allegations. StanChart's share price however remained more than 10% below where it closed last Friday.
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.
(c) BullionVault 2011
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