Gold Rally Fades with Western Investment

From Adrian Ash

BullionVault

Euro-Correlation, But Indian & Chinese Buying “Strong”

THE PRICE OF GOLD reversed a 1.0% rally Thursday lunchtime in London, dropping back to $1161 an ounce as European equities rose, commodity markets trod water, and the US Dollar slipped to new multi-month lows.

• Silver prices struggled above $17.50 an ounce and US Treasury bonds also slipped, nudging the 10-year yield back up to 3.00%.

• “Physical gold investment in the continental European market is very, very quiet,” says German-refinery Heraeus’ head of sales, Wolfgang Wrzesniok-Rossbach

• Unlike the record volumes hit at the peak of the Greek debt crisis in May, “It is not a mass market at the moment,” he says.

• New York’s giant SPDR exchange-traded gold trust yesterday reported its sharpest outflow since April at 18 tonnes – some 1.4% of its gold bullion hoard – and headed for its worst monthly contraction since Feb.

• On Thursday morning the gold price in Euros fell to its lowest level since May 3rd, and the single currency also hit a new 11-week high against the Dollar.

• Gold and the Euro previously showed a strong, positive correlation against the US currency, but that connection has been severed throughout 2010.

• On a rolling one-month basis, the correlation of daily changes in gold and the Euro fell to minus 0.86 on Wednesday, just shy of the record inverse correlation hit in mid-May.

• That figure would read +1.0 if gold and the Euro moved together in lockstep, or minus 1.0 if they moved perfectly opposite.

• The 10-year average to end-2009 was +0.60.

• “It seems people are moving a bit out of gold,” said Standard Chartered bank’s head of commodities, Jeremy East, earlier this week.

• “Financial meltdown and all the rest of it seems to be disappearing.”

• Physical Gold demand has however risen this week in China – the world’s No.2 consumer – as well as India, according to wholesale dealers.

• “Our Hong Kong office reports a rising premium on Shanghai gold” above the spot gold price quoted by London’s bullion banks, says one broker.

• “Gold prices were well supported” in Asian trade overnight, agrees a Hong Kong dealer, following what Scotia Mocatta analysts called “trendless trading…an opportunity for consolidation.”

• “Demand in India has been quite strong over the past three days,” says another London dealer, after this week’s 2.2% drop in the Dollar price – plus the second hike in India’s official interest rate this month – knocked the Rupee price down to an 11-week low.

• The world’s heaviest gold-consumer market, India typically sees strong buying as the autumn festival season begins in Sept.

• Gold imports to India – which has almost zero domestic gold mining output – fell by 40% as prices surged to new record highs in the 3 months to end-June.

• “Our sales to India in July [were] five times greater than June,” says UBS bank strategist Edel Tully.

• “Our sales desk have not experienced a stronger two-day period since late January.”

• “Buying is definitely there. Traders, who bought 10 kilos a few days back, are now buying 40 kilograms,” Reuters quotes a Kolkata trader.

• European stocks rose meantime Thursday, with London’s FTSE100 hitting a 10-week high.

• The gold price in Sterling slid to £743 an ounce, a new 3-month low, as the Pound extended this month’s near-5% rise vs. the Dollar.

Adrian Ash

BullionVault

Gold price chart, no delay |   Buy gold online at live prices

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.