London Gold Market Report

By: Adrian Ash | Mon, Jul 6, 2009
Print Email

Gold Down vs. "Safe Haven" Dollar as Regulatory Changes Threaten Futures Dealing, Indian Imports

THE PRICE OF GOLD for US investors fell 1.2% in London on Monday morning, but held flat against other major Western currencies as all markets bar government bonds fell against want one dealer called the "safe haven" Dollar.

Stocks dropped hard in Asia and Europe, driving the MSCI index of world equities to a two-week low.

Energy prices sank, knocking 5% off both natural gas and US oil contracts. Silver lost 2.7%, copper dropped 4.3% and food-stuffs lost almost 3% on average.

On the currency markets, the Euro dropped to a two-week low beneath $1.39 to the Dollar.

"The slide in oil prices may keep Gold Prices subdued," reckons Pradeep Unni at Richcomm Global Services in Dubai, quoted by Bloomberg.

"Fresh buying could be limited and slow. It's ideal to be on the selling side."

Typically seen as moving in tandem, the daily correlation between US-Dollar Gold Prices and the Euro/Dollar exchange rate has averaged 0.67 since the start of May, stronger than its 10-year average of 0.50.

Between New Year's Day and the end of April, gold showed a daily correlation with the single currency of just 0.02, rising together with the Dollar to spark a series of new record highs against the Euro, Sterling, Canadian, Australian and Swiss currencies.

"The inverse relationship to the US Dollar has clearly returned for the precious metals," says one London dealer today, pegging support at June's low of $913 an ounce.

Commerzbank also pegs support at $913, as does Scotia Mocatta.

"If equities remain weak through US trading," says chief metals strategist John Reade at UBS in London, "[and] combined with further Dollar strength, then gold could target the recent low at $913-$914 an ounce."

Last Friday's weekly report of Gold Futures positions remains delayed by the long Independence Day weekend, but US futures brokers could be forced to close, industry insiders tell today's Financial Times, if regulators push ahead with increased capital requirements.

Hiking by 25% the cash that brokers must set aside to cover possible client losses, the Commodity Futures Trading Commission (CFTC) would cost them "hundreds of millions of dollars" according to Newedge, one of the world's largest commodity brokers.

"We believe that [brokers] that do not carry out nor have access to large amounts of capital in excess of current requirements - but are otherwise financially stable as a result of customer margin deposits and low-risk business models - would be forced to go out of business," it told the paper.

Here in London on Monday, City watchdog the Financial Services Authority (FSA) said it wants to treble the fines charged to wayward firms, setting a minimum penalty of £100,000 ($161,000).

The FSA also wants to fine individual staff up to 40% of their pre-tax income, including bonus, if found guilty of abuse.

Over in India meantime - the world's hungriest gold market, where the Sensex stock index dropped almost 6% on Monday - the government announced higher import duties on both gold and silver bullion.

"As it is business was bad. This will make it worse," said president of the Bombay Bullion Association, Suresh Hundia to Reuters.

Finance minister Pranab Mukherjee wants to double import duties on Gold Bullion to 200 Rupees per 10 grams (US$12.90 per ounce). Silver duty will double to Rs 1,000 per kilo (US65¢ per ounce).

India's gold imports had already dropped 57% over the first 6 months of this year. Unless demand picks up on falling prices, says the BBA's Hundia, demand could fall a further 25%.

Last week saw the crucial summer monsoon rains finally cover India, encouraging planting and potentially helping autumn gold sales if the harvest is good as October's Diwali festival draws near.

"Certainly gold sales would get affected due to the monsoon factor," said one Mumbai bank-dealer to the Economic Times, forecasting a 20-30% drop in gold sales before the rains arrived.

"With equities under renewed pressure, Gold ETF holdings might rise once again," says Walter de Wet at Standard Bank today, examining the role played by gold-tracking shares traded on the major Western stock markets.

"We believe that gold will compete against equities for investment money [and] there is still plenty of systemic risk in the financial system, and macroeconomic growth concerns remain. We view it as encouraging that ETF holdings have remained robust despite equities having gained 32.5% since mid-March. This has supported the Gold Price."

 


 

Adrian Ash

Author: Adrian Ash

Adrian Ash
BullionVault.com

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 (www.gold.org) 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 http://www.bullionvault.com

© 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 © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/