London Gold Market Report

From Adrian Ash

BullionVault

Gold Analysts “Bullish” as Dollar Slips, ECB “Accidentally” Extends Cash-Draining Program

• GOLD DEALT IN large wholesale bars slipped in price for the second session running in London on Thursday, dropping 2.5% from Tuesday’s record highs as European stock markets held flat and the US Dollar ticked lower on the currency market.

• The central banks of both the Eurozone and the UK voted to keep interest rates on hold, sticking since spring 2009 at 0.5% and 1.0% respectively.

• Gold priced in Sterling and Euros rallied from 3-session lows Thursday lunchtime, bouncing higher from £835 per ounce and €32,500 per kilo.

• “Gold is undergoing a reflexive movement,” says a note from Italian bullion dealers Italpreziosi.

• “We view this retracement as profit taking,” agrees the latest technical analysis from bullion bank Scotia Mocatta, citing “major pivot support at 1201.

• Scotia’s analysts “remain bullish” on gold “while that level holds.”

• “Only an unexpected slide through the three month support line at 1189.22 would dampen our bullish outlook,” says this week’s analysis from Axel Rudolph at Commerzbank.

• “We still have the 1350/1393 region in view once [gold’s] all-time high at 1250.45 has been exceeded.”

• Commodity prices ticked higher as the US Dollar edged below $1.20 per Euro today, with US crude oil contracts rising towards $75 per barrel.

• Long-dated major-economy bonds rose, pushing 10-year German Bund yields back down to 2.56%, but shorter-term government debt slipped across the board.

• Here in London, Standard & Poor’s head of sovereign ratings, David Beers, told a Reuters Investment Summit on Wednesday that “There’s nothing particularly inevitable about Greece defaulting in the near term,” citing the joint European-International Monetary Fund rescue package agreed in May and last priced at $1 trillion.

• The European Central Bank suffered “a technical hiccup” yesterday, as the Financial Times reports, publishing a “test message” on its website that announced the sale of €10 billion ($12bn) in three-month ECB debt certificates but immediately calling the notice an accident.

• “Clearly the ECB has published early details of their desire to effectively extend sterilization” of its current Euro-government bond-buying program, reckons Divyang Shah at IFR Markets.

• “[This] extension of liquidity absorbing policy…puts the ECB in line with the Fed, who will look to absorb liquidity via their Term Deposit Facility…due to start on June 14.”

• Back in the gold market, holdings for New York’s SPDR gold ETF trust fund were unchanged yesterday after rising to a new record of 1298 tonnes on Wednesday – some 8.9% larger from this time last month.

• In Europe, “Demand for gold bars is currently not as high as it was the past [few] weeks,” says Wolfgang Wrzesniok-Rossbach at the Heraeus refining group in Hanau, as “full-capacity bar production has…led to delivery periods normalising.”

• The rush to buy gold amid last month’s Eurozone debt crisis today left 168 of the 255 precious metal products advertised by leading German gold dealer ProAurum “temporarily unavailable”.

• “[Those] gold buyers must have felt strong not only due to the growing uncertainties” over sovereign debt, Wrzesniok-Rossbach says, but also because “in recent days various producing-countries have reported negative developments in connection with gold recovery.”

• Heraeus’ head of sales notes the 15% drop in South African Gold Mining output year-on-year, as well as the 11% drop in Russia and 21% in Peru.

• “The only country that has again reported a plus in its [April] figures is China – plus 5.6% compared to the previous year.”

• Today the Sydney Morning Herald reported that, following Australia’s proposal for a 40% domestic mining tax, Beijing is considering a 5% “super-tax” on its natural resource output.

• China is now the world’s No.1 gold mining nation, as well as its No.2 consumer market.

Adrian Ash

BullionVault

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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

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