London Gold Market Report
Gold Gains as Fed Chairman Points to “Continued” Stimulus, Euro Leaders To Increase Bailout Firewall, But Spain “Risks Contagion”
WHOLESALE MARKET gold prices jumped to $1679 an ounce ahead of Monday’s US trading – up nearly 1% on last week’s close – while stocks, commodities and the Euro also gained and government bond prices dipped, after Federal Reserve chairman Ben Bernanke said the US economy still needs ”continued accommodative polices” despite recent signs of improvement.
Silver prices meantime rose to $32.76 per ounce – up 1.5% from where they ended Friday.
“A wide range of indicators suggests that the job market has been improving, which is a welcome development indeed,” Bernanke told the national Association for Business and Economics Annual Conference on Monday morning.
“Still, conditions remain far from normal, as shown, for example, by the high level of long-term unemployment and the fact that jobs and hours worked remain well below pre-crisis peaks.”
Bernanke added that a fall in the unemployment rate “will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”
Over in India, where many gold dealers remain on strike over the recent increase in gold import duties, physical gold demand “remains low”, says Standard Bank commodities strategist Walter de Wet.
“We do expect demand to pick up in April as the Akshaya Tritiya festival in late April is fast approaching,” De Wet adds, noting that Akshaya Tritiya is India’s second-biggest festival for buying gold.
Indian gold imports will drop to 665 tonnes this year – a drop of nearly one third on 2011′s figure –according to the median estimate in a poll of importers, jewelers and brokerages conducted by newswire Reuters.
European leaders are set to expand the size of the region’s so-called ‘firewall’, according to press reports Monday.
German chancellor Angela Merkel and finance minister Wolfgang Schaeuble have dropped their opposition to combining unused funds in the €440 billion European Financial Stability Facility with the €500 billion European Stability Mechanism when the latter becomes operational in July, German newspaper Der Spiegel reports.
Accounting for funds already committed to Greece, Ireland and Portugal, the move would boost the amount of bailout funds available to around €740 billion, according to the Financial Times.
At last month’s G20 meeting in Mexico, European leaders were told they should do more towards solving the Eurozone crisis before asking for a greater contribution from the International Monetary Fund.
Eurozone finance ministers are due to meet this Friday in Copenhagen.
“The key thing now is to conclude the comprehensive crisis response,” said Olli Rehn, European Union commissioner for economic and monetary affairs, over the weekend.
Elsewhere in Europe, Italian prime minister Mario Monti warned this weekend that Spain “hasn’t paid enough attention to its public accounts”.
“It doesn’t take much to recreate the risks of contagion.”
Yields on benchmark 10-Year Spanish government bonds have risen from 4.99% at the start of this month to over 5.5% last week – though they remain below the Euro era peaks of 6.7% hit last November.
Earlier this month, Spain’s prime minister Mariano Rajoy said he was making a “sovereign decision” to ignore the EU’s deficit target of 4.4% of GDP, setting his own at 5.8%, although Spain subsequently agreed to additional budget cuts.
Spanish unions meantime are due to stage a general strike on Thursday.
Banks are set to shrink their balance sheets by a further additional $1 trillion over the next two years, selling assets and closing operational divisions, according to a joint report by Morgan Stanley and consultancy Oliver Wyman.
“It is really decision time for investment banks,” reckons Morgan Stanley’s Huw van Steenis.
“The market underestimates the degree to which banks will rationalize their portfolios of activities.”
The net long position of so-called speculative gold futures and options traders on the new York Comex – measured as the difference between bullish and bearish contracts – fell to its lowest level since the first week of January last week.
The speculative net long position fell 15.4% in the week ended last Tuesday – equivalent to 78.1 tonnes of gold bullion – according to Commodity Futures Trading Commission data published on Friday.
“The activity in the futures market suggests a return to the less favorable view on gold of two weeks ago,” says Standard Bank analyst Marc Ground.
The world’s largest gold ETF, the SPDR Gold Trust (GLD), meantime saw its holdings fall by 10.6 tonnes to 1282.7 tonnes in the week ended last Friday.
Over the same period, the iShares Silver Trust (SLV), the world’s largest silverETF, saw its holdings drop by 36.3 tonnes to 9716.4 tonnes.
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 2012
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