London Gold Market Report
DOLLAR-PRICED GOLD held onto this week's 1% gain in London trade by Friday lunchtime, holding steady against the rising US currency as bonds pushed higher but world stock markets headed for their first weekly loss in three.
"Euro denominated gold has now convincingly broken back above the €1000 level" per ounce, says one London dealer in a note.
The gold price in Sterling today rose above the £852 level it touched four times in the last three weeks.
"We expect all the Chinese to be back in the game on Monday" says Swiss-based MKS Finance, echoing comments from many Hong Kong and London dealers, after the long Lunar New Year holiday extended into this week.
"Activity in China remains muted [but] there is evidence of strong interest for silver," says Standard Bank.
"China's recent rate hike is also fuelling these inflation worries."
Silver prices ticked lower Friday morning in London, but neared their third week-on-week gain in succession – adding some 14% against Dollars, Euros and Sterling alike from end-Jan.'s two-month lows.
"With inflation in China expected to be above 5% for much of the early part of 2011, [its rising] rates are not yet at levels that offer an attractive opportunity for savers," says Nic Brown and the commodities team at French bank Natixis.
"But with each rate increase the opportunity cost [in missed interest payments] of holding gold rises."
South Korea's central bank surprised the market on Friday by keeping its key lending rate on hold. Vietnam meantime devalued its currency, the Dong, by 9% vs. the US Dollar – the second such move in 6 months – after the Communist Party's recent 5-year congress ordered the central bank to "stabilize the macroeconomy".
"Demand from China, India and central banks has been strong over the last year," says Natixis. But "if western investors become net sellers of gold the market may find it difficult to sustain the current elevated prices," it adds, noting early 2011's strong outflows of metal from the large exchange-traded gold trusts.
The giant SPDR gold ETF shed another tonne of bullion on Thursday to near January's 9-month low of 1224 tonnes held in trust.
Following a week of strong earnings results from publicly-listed gold mining companies in North America and South Africa, slack investor interest last night forced Severstal to pull the £441 million ($709m) float of its Nord Gold division on the London stock market – "the fourth Russian offering in the City to be hit by emerging market outflows in less than a week" says the Financial Times.
Mid-sized Dutch pension fund SPVG was meantime ordered by its regulator to sell three-quarters of its 13% allocation to gold, because that level is not "prudent".
SPVG is 85% invested in Dutch and German government bonds, says SPVG – which runs €300m for employees of glass manufacturer Vereenigde Glasfabrieken – adding in a statement that "The fund has its formal obligations secured in Euros.
"But the Euro is actually secured by trust in government...[and] the decision to invest in gold is actually an insurance."
Reporting a 67% gain since its 2008 purchase, "This [insurance] is also the same argument of central banks and the IMF for holding large gold positions," says SPVG, vowing to appeal the judgement but accepting that it may have to sell down its gold allocation.
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 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 World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
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