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-- Posted Wednesday, 22 July 2009 | Digg This Article | | Source: GoldSeek.com

London Gold Market Report

THE PRICE OF GOLD drifted for the second day running on Wednesday morning, bouncing 1% beneath Monday's 7-week high of $955 an ounce in what London dealers called "quiet" trade.

US crude oil futures slipped back below $65 per barrel, and European stock markets dropped into the red for the first time in 8 trading sessions.

Short- and long-term government bonds pulled in different directions, while the US Dollar held steady on the currency markets.

"US bond yields declined sharply on Tuesday, supporting the US Dollar," says today's commodities note from Standard Bank in London, because Federal Reserve chairman Ben Bernanke "indicated yesterday that the Fed funds rate should remain low for some time to come."

Fed chair Bernanke was due to begin the second part of his two-day testimony to the Senate Banking Committee later today.

"We expect a range-bound day for Gold in the absence of any major data releases," says Standard, "although the bias could be to the downside."

The British Pound meantime recovered half of this week's losses at $1.6450 early Wednesday on news that the Bank of England voted unanimously earlier this month to keep UK rates on hold at 0.5%.

Spying "signs this month that the global economy was approaching a trough," the Bank said it will continue and review its Quantitative Easing limit of £125 billion ($200bn) at the August meeting.

New data this morning showed European industrial orders, UK industrial sentiment and US mortgage applications all coming in below analyst expectations.

Sterling's move knocked the Gold Price in British Pounds back from a 7-week high at £581 an ounce.

The price for Eurozone investors now Ready to Buy Gold stayed below €668 an ounce – the upper end of the last one-month's range.

"It was fear of financial Armageddon that drove gold to those [$1,000] highs," said Calyon analyst Robin Bhar to reporters on Tuesday.

"That will not be a driver going forward. The two primary drivers we see pushing gold higher are a weaker Dollar...and massive injections by central banks of liquidity to support economic growth.

"This unconventional monetary policy is inflationary."

The investment-bank division of French giant Credit Agricole, Calyon has now raised its 2010 forecast for the Gold Price to $975, with the 2011 average seen at $1,025 an ounce.

Over in the official sector, "China's announcement of official bullion purchases can be seen as a defining moment for the gold market," writes GMFS consultancy head Philip Klapwijk in the latest American Advisor newsletter.

"A shift from net [central bank] sales to something close to 'neutrality' would be highly positive for Gold Prices, at the very least providing the market with a very solid floor and giving a major boost to sentiment and confidence in the yellow metal."

New data showed Tuesday that gold holdings amongst the Eurozone central banks were unchanged last week.

Their Central Bank Gold Agreement – which sets a cap on sales of 500 tonnes per year – has so far seen less than 150 tonnes of sales since the current year began last September.

The 5-year agreement, signed in 2004, is due to expire in 10 weeks' time.

Meantime in New York, David Einhorn of Greenlight Capital – who publicized the 35-to-1 gearing at Lehman Bros, and sold its stock short ahead of the investment bank's collapse last fall – has now taken a short position in the Moody’s ratings agency, reports Institutional Investor magazine.

"If your product is a stamp of approval where your highest rating is a curse to those who receive it – and shunned by those who are supposed to use it – you have a problem," he says.

Einhorn last week announced that he'd transformed a $390 million position in New York's SPDR Gold ETF into physical Gold Bullion.

The 40-year old hedge fund manager told clients that he made the switch because of the Cost-Savings that Owning Physical Metal outright will deliver.

Adrian Ash

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

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.

-- Posted Wednesday, 22 July 2009 | Digg This Article | Source: GoldSeek.com

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