London Gold Market Report

The PRICE of gold halved yesterday's gains in London trade Tuesday morning, slipping below $1320 per ounce as European stock markets extended their drop and the US government shutdown continued.

Silver fell less than gold, edging back towards $22.20 from a new 3-week high hit overnight at $22.46 per ounce. 

A new ABC/WashingtonPost poll says 70% of US voters "disapprove of how the Republicans in Congress are handling the budget negotiations," with the October 17th deadline for potential US debt default drawing nearer.

The VIX volatility index on S&P 500 stockmarket options yesterday jumped by 15%, the sharpest 1-day move since June.

Analysis from London market-maker Scotia Mocatta said Monday night the bank's New York desk is "currently neutral" despite yesterday's 1.2% gain, "but would view it as a positive development if gold holds key support at $1273."

"Potential is for a fresh sell-off to materialise soon," counters analysis from fellow market-making bank UBS.

"The bearish outlook remains intact...We expect the yellow metal to test the crucial support at $1180.50, the June 28 low, over the coming days."

Even as gold rose 3.7% vs. the Dollar in August, gold bullion imports to China from Hong Kong topped 100 tonnes, net of exports, for the fourth month running new data showed today.

Former No.1 consumer nation India imported only 100 tonnes over July, August and September combined, says local managing director for market-development group the World Gold Council, P.R. Somasundaram.

"Gold recovered in a weak US-Dollar environment [with] few assuring economic data," says the latest Precious Metals Update from German-based refining group Heraeus.

"Still, the short-lived dip in prices led to an increased demand for gold investment bars."

Focusing on the developed West in contrast, "The investment case for gold relies on the expectation of rising inflation," says analysis from investment bank and bullion market-maker J.P.Morgan, "which in turn relies on growth.

"Yet the US shutdown is damaging US growth, both in direct terms through the furlough of 800,000 government employees and through a host of indirect channels." 

Yesterday's move in the gold price came in very quiet trade, with volume in US Comex gold futures reaching barely 98,000 contracts – some 60% of the last month's average turnover.

"We will stay supported," reckons brokerage Marex Spectron's head of precious metals David Govett, "as long as the US keeps playing brinkmanship with itself and as the deadline for the debt ceiling approaches.

"[But] interest in the market is pretty low. Once this farce is out of the way, I think we head lower."