London Gold Market Report
from Ben Traynor
Tuesday 1 May 2012, 08:45 EDT
WHOLESALE MARKET prices for buying gold climbed above $1670 an ounce for the first time in over a fortnight Tuesday lunchtime in London, while stocks and commodities were broadly flat, with the main European markets except London closed for the May 1 holiday.
Prices for buying silver meantime broke through $31.20 an ounce, though they remained below last week’s close by Tuesday lunchtime in London.
The previous day, gold was broadly steady for most of Monday’s trading, with the exception of a sharp $15-an-ounce drop reportedly triggered by 7,500 gold futures – equivalent to around $1.2 billion – being sold in just one minute, leading to a 10 second suspension in trading.
“The reason for the selloff remains uncertain,” says Standard Bank commodities strategist Leon Westgate.
“However, given the volumes traded, it is unlikely to be a fat finger.”
Over in India, where Rupee gold prices hit an all-time high today, interest in buying gold ”has become anemic after the recent gold buying festival ended,” according to a note from Barclays this morning.
Indian exports meantime fell in March for the first time in three years, dropping 5.7% by value from a year earlier, official data published Tuesday show.
Ratings agency Standard Poor’s last week cut the outlook on India’s credit rating from ‘stable’ (BBB+) to ‘negative (BBB-), adding that India’s sovereign debt faces a one-in-three chance of losing its investment grade status.
The move has made it more difficult for India’s central bank to halt the depreciation of the Rupee, one Reserve Bank of India official told news agency Reuters on Tuesday.
“The main problem now is lack of confidence among investors and this is getting reinforced every time by either data or events like SP cutting rating outlook,” said the RBI official.
“When risk aversion is high, the success rate of intervention is low and that is why we are seeing Rupee at such low levels despite intervention.”
The Rupee has fallen 18% against the Dollar over the past 12 months.
China’s manufacturing sector growth accelerated last month, according to official purchasing managers’ index data published Tuesday. The official manufacturing PMI came in at 53.3, up from 53.1 in March. A figure higher than 50 indicates expansion in manufacturing activity.
“The peak reading in a year usually occurs in April so the actual strength of China’s manufacturing sector was probably not as resilient as indicated,” warns Societe Generale economist Yao Wei in Hong Kong.
“There’s a big chance that the second quarter is going to be weaker than the first quarter,” adds Joy Yang, chief economist, Greater China at Hong Kong’s Mirae Asset Securities, speaking to Bloomberg Television this morning.
“We see that the external environment has sort of stabilized but we don’t see drivers in growth yet. I think [policymakers] will have to start easing no later than the middle of the year.”
“Beijing will continue its pro-growth policies,” agrees Ting Lu, economist at Bank of America Merrill Lynch.
“But the markets should also be wary of overly optimistic [growth] forecasts.”
Here in the UK, official data suggest a slowdown in manufacturing activity, with the PMI falling to 50.5 last month, down from 51.9 in March.
The fall was “partly due to a sharp reduction in new export orders,” said a statement from Markit, the data services provider that produces the PMI.
Tuesday saw a series of anti-austerity protests across Europe, with workers in France, Greece, Italy, Portugal and Spain using the May 1 holiday to attend rallies.
Across the Atlantic, the Occupy movement is set to mark the day with a series of demonstrations across the United States.
The US is “in a low-key version of the Great Depression,” according to Princeton economics professor and New York Times columnist Paul Krugman.
“We have had a massive failure of our political system that has come to accept that 8% unemployment is the new normal and there is nothing that can be done,” Krugman said in Bloomberg’s ‘Paul vs Paul’ debate between Krugman and Congressman Ron Paul on Monday.
“What we really want from the Fed now is that kind of resolve to do whatever it takes.”
“The most likely trigger for more private sector involvement in the gold market,” says a research note from Deutsche bank today, “would be from a deterioration in the US labor market alongside a weakening in the US Dollar.”
Quantitative easing and ultra-low interest rates will lead to “gradually higher rates of inflation” warns Bill Gross, managing director of world’s largest bond fund Pimco, in his monthly ‘Investment Outlook’.
“Real assets/commodities should occupy an increasing percentage of portfolios.”
Americans’ appetite for buying gold coins however appears to have diminished since this time last year, with April’s US Mint sales showing an 81% year-on-year drop in gold American Eagle sales.
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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
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