London Gold Market Report

By: Adrian Ash | Mon, Jun 22, 2009
Print Email

Gold Hits 5-Week Low Ahead of Fed's "Dollar Devaluation" Vote; Russia Builds 10th Biggest Central-Bank Holdings

THE SPOT PRICE OF physical gold sank to new 5-week lows at $924 an ounce early in London on Monday, recording the lowest Gold Fix since 18th May as the US Dollar held steady on the foreign exchanges and world stock markets fell.

Crude oil dropped back to $68.50 per barrel, and government bond prices were bid higher across the board, pushing the yield offered by 10-year US Treasury debt down to 3.72%.

Last week Nobel-winner Paul Krugman and US presidential advisor Christina Romer argued in the New York Times and Economist respectively that "It's much too soon to give up on...aggressive monetary policy and deficit spending."

Ahead of this Wednesday's monetary policy decision in Washington, "the Fed can't let up on the monetary gas at this stage - let alone apply the monetary brake," says Steve Barrow at Standard Bank.

"We believe that the Fed is engaged in actively devaluing the Dollar against local goods and services. This week it might even commit to more [quantitative easing] asset purchases, or at least switch the mix towards more Treasuries and less mortgage-backed securities.

"If this still implies a monetary policy that devalues the Dollar internally, the Dollar should devalue externally as well."

Little changed from Friday's close, however, the Dollar was today joined by most other major currencies in pushing gold lower.

Gold Futures traded in Tokyo for delivery in April 2010 slipped 0.8% against the Yen to ¥2,892 per gram, only a little above last Wednesday's five-week low.

UK buyers saw the Gold Price in Sterling drop to fresh five-month lows beneath £563 an ounce.

For Eurozone investors now Ready to Buy Gold, the price held at €666 an ounce - the very bottom of the last 12 weeks' trading range.

"The question revolves around how much Gold Investment demand do we have, how strong is it, and what happens to the gold market when investment demand goes from strongly positive to neutral or negative," says Paul Walker, CEO of London consultancy GFMS, to Canada's Financial Post.

Pointing to the risks of either strong inflation or a sound economic recovery, "We're on the cusp of two very different scenarios," Walker believes. "And I have to be intellectually honest and say that I don't know which one it is going to be."

Continuing to show a strong correlation with changes in the Gold Price, the total volume of US Gold Futures and options outstanding last week fell 3.6%, new data from regulator the CFTC said late Friday, dropping to the lowest level since early May.

The "net long" position held by hedge funds and other large speculators - equivalent to a call on 569 tonnes - fell by 9%.

New York's SPDR Gold ETF - the world's single largest gold-holding trust fund - ended last week unchanged at 1,132 tonnes.

In the official sector, meantime, new data from the World Gold Council today showed Russia adding 17 tonnes to its gold reserves so far in 2009, taking the Kremlin's hoard to tenth position in the central-bank rankings - and overtaking the European Central Bank (ECB) in Frankfurt - with 537 tonnes.

Equal to 4.0% of Russia's total currency reserves, Moscow's Gold Bullion stockpile has swelled by 15% since this time last year.

France and Sweden have continued to sell gold in contrast, divesting 41 and 4.5 tonnes respectively within the Central Bank Gold Agreement, the five-year treaty which caps sales by its 15 signatories to 500 tonnes per year.

The 400-tonne IMF Gold Sales approved last week by the US Senate are now expected to form the basis for renewal of the CBGA when it expires in September.



Adrian Ash

Author: Adrian Ash

Adrian Ash

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 head of research at BullionVault, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the secure, low-cost gold and silver exchange for private investors. It enables you to buy and sell professional-grade bullion at live prices online, storing your physical property in market-accredited, non-bank vaults in London, New York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people from 97 countries used BullionVault, owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical silver (US$129m) as their outright property. There is no minimum investment and users can deal as little as one gram at a time. Each user's unique holding is proven, each day, by the public reconciliation of client property with formal bullion-market bar lists.

BullionVault is a full member of professional trade body the London Bullion Market Association (LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development body the World Gold Council ( joined with the internet and technology fund Augmentum Capital, which is backed by the London listed Rothschild Investment Trust (RIT Capital Partners), in making an $18.8 million (£12.5m) investment in the business.

For more information, visit

© BullionVault 2006-2014

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.

All Images, XHTML Renderings, and Source Code Copyright ©