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London Gold Market Report

Fri, Aug 22 2008, 12:16 GMT
by Adrian Ash

BullionVault.com

Gold Prices Slip But "Demand Up, Premiums Up" as Gold Coin Shortage Locks Out New Buyers

THE SPOT PRICE OF GOLD in the international wholesale market slipped below $825 early on Friday in London, but stayed on track for its sharpest one-week gains since 2001 after losing $150 per ounce from the end of July.
 
"Demand is up and premiums are rising throughout the globe," said a professional gold dealer to BullionVault by email today.

"In Turkey – I kid you not – premiums can be $35 over spot. Indian premiums are around $2 above spot Gold Prices."

The Gold Coin Shortage hitting would-be buyers worldwide also continues to worsen, with precious metal refineries now "booked solid" through to the end of Sept. according to one professional dealer in London.

"Why can't we Buy Gold at the online retailers?" asks one exasperated investor in a comment posted at MarketWatch.

"My experience ordering from [a leading US & Canadian coin and bar dealer] has been the same. No tracking record as of yet for an order placed more than 2 weeks ago."

(Rather not wait? Want to quit buying "retail" and get wholesale gold now...slashing your costs by four-fifths and more? Learn how to beat the Gold Coin Shortage today...)

Meantime in the energy markets, crude oil gave back $2 of last night's $5 jump sparked by fresh saber-rattling between Moscow and NATO over Russia's lingering invasion of Georgia in the oil-rich Caucasus.

"It's still speculative whether Russia will use oil as a weapon to punish the West," said Victor Shum, an analyst in Singapore for Purvin & Gertz. "But it has certainly focused the market on that geopolitical threat.

"The Russian-Georgia conflict has disrupted supplies."

After capping their best six-month run in 35 years with a 10% plunge in July, the broad commodity markets today headed for their best one-week jump since 1975 according to Bloomberg data.

"Gold is universally deemed to do well in the kind of [economic] conditions we have today – inflation and recession," note Matt Turner and Gary Mead in the latest Fortis Metals Monthly from Virtual Metals in London today.

"Longer-term, the metals bull run is likely to reassert itself. The Asian-growth catch-up story is not any different today than it has been for several years. But it may take a while to get back on track."

Ahead of Fed chairman Ben Bernanke speaking today on "financial stability" at the Kansas City Fed's symposium in Jackson Hole, Wyoming, the US Dollar ticked broadly higher on the currency markets.

The Euro slipped half-a-cent from last night's one-week high, drifting down to $1.4815 after industrial orders in the 15-nation currency zone showed a 7% fall from this time in 2007.

The British Pound meanwhile dumped 2¢ in two hours, slumping back to this week's 10-month lows vs. the Dollar on news that the UK economy ground to a halt between April and June, ending 16 years of unbroken growth.

The Gold Price in Sterling touched a nine-session high above £447 per ounce, recovering more than one-half of the last month's 11% drop.

"With no US data releases due today," says Manqoba Madinane for Standard Bank in Johannesburg, "technical signals should dominate the Dollar's movements.

"Market momentum indicators show that the greenback is due for a correction to the upside against the Euro. That could restrain precious metal investment sentiment [and] some investors may prefer the sidelines today."

For German, French and Italian buyers today, the Gold Price in Euros ticked below €559 per ounce – more than 15% higher from this time last year.

"This feels like the top of the range," says today's Gold note from Mitsui, the precious metals dealer, in London, "and the markets may need to consolidate at these levels.

"[Today] has the makings for a quiet Friday, as London prepares for a long Bank Holiday weekend."

Over in the equity markets, meantime, European stocks moved 1% higher while government bonds were mostly unchanged.

"There are so many reasons for gold to become stronger," said Commerzbank analyst Eugen Weinberg to Reuters earlier.

"Now we have tensions between Russia and NATO, we have financial market risk. US real interest rates are still negative, which makes the opportunity cost of holding gold lower."

In the US markets this week, investment-grade credit spreads – a measure of investor fear and financial risk – have moved sideways. But any fresh uncertainty, sparked by new rumors of a government bail-out for Freddie Mac and Fannie Mae for example, "could see investors rotate funds away from equity markets," believes Madinane at Standard Bank.

"This could be beneficial for precious metals if oil prices gain more support."

Published on  Fri, Aug 22 2008, 12:18 GMT