-- Posted Thursday, 8 July 2010 | Digg This Article | | Source: GoldSeek.com

London Gold Market Report

THE PRICE OF PHYSICAL gold bounced from a new 6-week low early in London on Thursday, but struggled to hold above $1200 an ounce as world stock markets jumped together with commodity prices.

Silver prices touched a 1-week high at $18.24 an ounce as the gold price in Dollars rallied from its May 25th low at $1186.16.

Neither the European Central Bank or the Bank of England altered their record-low interest rates of 1.0% and 0.5% respectively, leaving government bonds little changed.

"Given the wave of buying across the investment spectrum of Gold in recent months, it is not surprising there has been some profit taking," says July's new Metal Matters for clients of bullion-bank Scotia Mocatta.

Analyzing last week's broad "correction" in global asset prices, "Long liquidation may initially affect gold," the report says, but "we feel the end result will be increased investor fear.

"That is likely to see more money move into gold as a means to protect wealth."

New data today showed Germany's trade surplus falling in May, even as the Euro currency slid towards four-year lows.

UK manufacturing output also disappointed analysts, while British house prices showed their first month-on-month drop, on average, since March according to the Nationwide lender.

World economic growth, however, was today revised higher for 2010 to 4.6% by the International Monetary Fund, with the US and China set to expand their GDP more quickly than previously forecast.

"Current global macro-economic risks, such as the European sovereign debt crisis and strong money-supply growth, make a strong case for an additional tactical overlay to gold in reserves," says Natalie Dempster, director in Government Affairs at market-development body the World Gold Council.

"A sovereign debt downgrade to below investment grade reduces the pool of eligible investments for many central banks, while contagion risks lower the attractiveness of similar assets.

"Furthermore, the 2007/2009 financial crisis clearly changed what could be perceived to be markets which are deep and liquid. Gold, which bears no counterparty risk and is permissible as a reserve asset, has remained highly liquid through the worst of the financial crisis, and hence becomes especially attractive in the current environment."

Meantime today, Tuesday's news of central-bank "gold swaps" with the Bank for International Settlements – often called "the central banks' central bank" – was revised after the BIS denied that central banks were its counterparties.

"The operations concerned were purely market operations with commercial banks," the BIS said in an email, refuting an article in the Wall Street Journal which said the 346 tonnes of gold used to secure $14 billion in currency loans were directly owned by sovereign states.

"Nevertheless, there is one thing of which we can be sure," says the FT's Alpha blog today. "The bulk of gold-swapping did take place in January, and that coincides with the expiry of the Federal Reserve's Dollar swap-line facility."

At its peak amid the collapse of Lehman Brothers, the US Fed's Dollar swap-line with Eurozone banks hit $585 billion. The facility was re-opened as the Greek debt crisis worsened in spring 2010.

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 2010

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 Thursday, 8 July 2010 | Digg This Article | Source: GoldSeek.com

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