By From Adrian Ash
“Overblown” as Chinese & Indian Demand Surge with Economies
PHYSICAL WHOLESALE MARKET prices to buy gold held firm in London on Friday morning, nearing the end of what one London trader called “another roller-coaster week” some 1.7% lower for Dollar and Sterling investors but little changed vs. the single Euro currency.
Friday morning’s London Gold Fix, set at $1390 per ounce, was some 2.5% below Tuesday’s new all-time record high.
Japanese equities meantime ended the week unchanged, but Germany’s Dax index crept back towards two-and-a-half year highs, while Wall Street’s Nasdaq tech-stock index was set to open near 3-year highs.
Major-economy bonds steadied, holding yields just below this week’s 6-month highs, as US Treasuries headed for their worst weekly loss of 2010.
“We expect sellers of the metal near $1400,” says gold bullion market-market Scotia Mocatta’s short-term trading note.
“The US interest-rate decision [next Weds] could give direction to the US currency and thus most probably have an effect on gold’s trajectory,” says Swiss refinery group MKS’s trading desk.
“There has been an underlying shift to gold as an alternative currency,” said a London gold bullion trader to Reuters, “with both the Dollar and Euro weak, and a lack of confidence in global banking.”
But while “a general distaste for and distrust of fiat currencies and fears of future inflation [has] intensified investors’ desire to hold physical commodities,” says Mitsui analyst David Jollie, “the description of gold as a currency rather than a commodity seems overblown, given the similar performance of copper.”
Both copper and gold prices have risen around 28% so far this year. A group of London metal traders last month wrote to City watchdog the FSA last month to warn that licensing exchange-traded investment funds – backed by physical copper stockpiles – may mean “approving the next financial bubble.”
J.P.Morgan has already received US regulatory approval for its forthcoming copper ETF, with competing products expected from BlackRock iShares, Deutsche Bank and ETFSecurities amongst others.
“Output shortages of 800,000 metric tons may occur in 2011 and in 2012, compared with a balanced market this year, “ says Bloomberg, quoting Trafigura Beheer BV, “which considers itself the second-largest trader of industrial metals.”
New data from China today showed copper imports to the world’s fastest-growing economy rising 29% last month from a 1-year low, while its crude oil imports rose 26% from Oct.
Crude oil prices today ticked higher above $88 per barrel, while copper held near Thursday’s new record highs.
Silver prices briefly touched $29 an ounce for the second day running.
Rubber prices hit fresh 30-year highs. Heavy rains in southern Australia led ANZ Bank to warn that 60% of the country’s wheat crop may be cut to animal-feed quality.
“We think the threat of bubbles is greatest [not in emerging economies but] in commodity markets,” says Capital Economics’ chief international economist in London, Julian Jessop.
“The prices of industrial metals and agricultural commodities have already returned to the pre-crisis levels of 2008 – levels which were only achieved after the world economy had been booming for four years.”
Already the world’s No.1 importer of copper and the No.1 consumer of energy, rice and wheat, China may become the world’s No.1 corn importer within five years, reckon analysts at Rabobank, as rising meat consumption demands increased pig and poultry production.
Gold bullion imports to China have jumped 5-fold so far this year, reaching more than 200 tonnes according to the Shanghai Gold Exchange.
Now the world’s largest single gold mining nation, China does not allow large-scale exports of its near-300 tonne output.
“Tighter global monetary policy is bad for gold, and this is tighter monetary policy,” said Japanese conglomerate Mitsubishi’s chief analyst Matthew Turner today, commenting on China’s latest increase in banking reserve ratios – the sixth such hike of 2010.
“But [it’s] only slightly [tighter], and in one part of the world, so the impact is not huge.”
Demand to buy gold from Indian clients was the strongest mid-week since late Oct., just before the peak Diwali festival, Swiss bank UBS’s London office reported today.
Back then, “Gold was trading around $1320,” notes UBS chief analyst Edel Tully. Gold prices this week dipped below $1380 an ounce.
New data today showed India’s industrial production growing by nearly 11% in Oct. from a year earlier. Twenty-nine economists surveyed by Bloomberg News forecast an average rise of 8.5%.
Adrian Ash
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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 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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