London Gold Market Report
From Adrian Ash
The WHOLESALE price of gold bounced hard Tuesday lunchtime in London from new 3-month lows, regaining $10 per ounce from $1255 as European shares rose but US stock futures pointed lower.
The Dollar rose, knocking almost 1 cent off the Euro, as word spread of an apparent US political deal to avert technical default at the debt limit's deadline on Thursday.
The proposal would extend government funding to January, with an interim hike in the $16.7 trillion debt limit, according to reports.
US bond prices edged lower, however, nudging interest rates up.
Silver mapped and extended the action in gold, dropping almost 3% before climbing back to $21.01 per ounce.
"Most disappointing [about gold]," says a note from brokers INTL FCStone, "is the fact that the precious metal has hardly managed to stage any kind of rally, even when the outlook for the US budget and debt ceiling negotiations was at its bleakest.
"Now that an imminent resolution seems to be in the offing...the prospects for a further advance look all the more questionable."
Looking at the trading action, "What is evident," says one Singapore dealing desk in a note, "is that gold remains trapped in a bearish trend."
"Gold market bears have the technical advantage," agrees Indian dealer and jewelry chain Riddisiddhi Bullions. "A seven-week-old downtrend is in place."
Rupee gold prices also slipped Tuesday to a new 3-month low as the India currency recovered further from September's all-time record lows to the Dollar.
Legal exports of gold bullion to India from Dubai – a major route into the world's largest gold consumer – fell nearly one-fifth by value over the first 8 months of the year, new data from the Arab emirate's Chamber of Commerce said at the weekend, dropping to the equivalent of $815 million.
Following rumors of Indian gold deposit banking products, aimed at "mobilizing" existing gold holdings to meet new consumer demand, Reuters today said the central bank is about to launch savings certificates linked to changes in India's inflation rate.
This retail investing offer is part of a move announced in May to raise $2.4 billion using inflation-linked bonds. It's also part of the Indian government's "continued bid to encourage households to diversify away from gold," Reuters says, citing official sources.
Consumer price inflation in India rose in September to a 7-month of 9.8% per year. The best bank interest rate currently offered is 10.1% for 16-month deposits, according to MoneyControl data.
Speaking in Washington yesterday, "[India] can pay three-fourths of its debt from its forex reserves," said Raghuram Rajan, governor of the Reserve Bank of India.
Stressing that India has no need of IMF support to strengthen its reserves or boost the Rupee, and referring to private gold consumption, "We [as a nation] bought over $60 billion gold last year," said Rajan.
"$60 billion accounts for three-fourth of our current account deficit. If the push comes to shove, we can pay the world in gold."
Gold dealers in China have meantime "been a reasonable buyer of late," says a note from MKS Capital, a division of the Swiss-based refining and finance group, pointing to a rise in Shanghai Gold Exchange's gold prices to $19 above London's benchmark.
"But the more progress made [in US debt ceiling talks], the more pressure is applied to gold. Investors are becoming increasingly worried about gold's long term stance as an investment product."
Talking about gold prices on Monday with Bloomberg, "I think between $1200 and $1250 it's getting into a buying range," said Swiss money manager and now Asia-based author Marc Faber of the Gloom, Boom & Doom Report.
"The sentiment about gold is very negative. But if you look at everything considered, [there is] monetization of the US debt, and the debt ceiling sooner or later will be increased.
"Because both Democrats and Republicans are big, big spenders."
Adrian Ash
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.
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