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London Gold Market Report

Tue, Aug 26 2008, 11:24 GMT
by Adrian Ash

BullionVault.com

WORLD GOLD PRICES sank at the London opening on Tuesday, losing 1.6% inside two hours as the world's No.1 gold-dealing market re-opened after its August Bank Holiday.

Asian and European stock markets meantime caught up with Wall Street's 2% losses from Monday, knocking the Nikkei in Tokyo down towards a fresh 5-month low.

The Euro and Pound Sterling both sank yet again vs. the Dollar, while bond prices rose.

That pushed US yields further into negative territory. The 10-year now pays minus 1.8% after Consumer Price inflation.

"The Gold Market has changed remarkably over the last four weeks," says the latest Refining Monitor from Mitsui, the global metals dealer, in London.

"The pick up in physical demand has been a characteristic across not just India, but also Europe, the Middle East, Asia and the United States. Volumes are returning to levels that were more reflective of conditions back in 2006."

Yesterday the US Mint re-instated "strictly limited" sales of American Gold Eagles, "popular novelties among collectors and investors since their introduction in 1986" as Reuters reports.

"The last occasion the US Mint was forced to [suspend deliveries] was two decades ago," Mitsui goes on.

"Indeed, gold Krugerrand coins are also in limited supply, with many retailers reporting a depletion in stocks Where supplies are not exhausted, significant delivery delays exist."

(How to beat the Gold Coin Shortage? Want to Get Gold Now at the lowest prices this year? Learn more now...)

In the US futures & options market last week, so-called "large speculators" – meaning hedge funds and other highly geared professional traders – continued to slash their bullish bets on the Gold Price, closing almost one-in-10 long contracts.

But the latest Commitment of Traders data, however, also shows "Commercial Traders" – the so-called "smart money" of refineries, bullion banks and other industrial gold players – growing their bullish bets by one-fifth.

That took the Commercial Traders' total long position to its largest level since January. As a proportion of their outstanding contracts, it reached the greatest weight since August 2007 – just prior to the 50% surge in world Gold Prices sparked by the US Federal Reserve slashing Dollar interest rates.

"Certainly, the refining community are very positive going forward," Mitsui goes on. "[They're] struggling to meet the metal requirements of banks and physical dealers."

Reports here in London say that precious-metals refineries worldwide are now booked solid until the end of September and beyond.

On the economic front this morning, new German data said the world's third-largest single economy went into reverse between April and June, shrinking by 0.5% from the previous quarter.

German business confidence then plunged in August, hitting its lowest level since 2005 according to the much-watched Ifo survey.

That news helped knock the European single currency lower again vs. the Dollar, down 1.5¢ at the Frankfurt opening to a six-month low beneath $1.4600.

The Gold Price in Euros held above Monday's low of €553.50 per ounce.

Crude oil, meantime, fell back towards $112 per barrel while US Treasury bond yields fell further still from yesterday's new three-month lows.

"Risk aversion is driving the bond market at the moment," said one fixed-income strategist at Calyon in London to Bloomberg earlier.

"It's an ongoing saga and equities are suffering on the back of the uncertainty. The German data has also given the bond market a leg up."

Ten-year US bond prices have now risen so far, they yield fully 1.8% less than the latest reading of Consumer Price inflation – a situation the Federal Reserve hopes will help stop deflation in US asset prices spreading to wages and shop prices.

Over in Japan, meantime – where interest rates have sat below 1.0% since 1995 – rising inflation saw the country's No.1 car-maker, Toyota, announce Monday that it will raise domestic car and truck prices for the first time since "deflation" hit the Japanese economy 16 years ago.

Takashi Sasagawa, head of the ruling Liberal Democrat Party, said today the Bank of Japan should also consider giving cash-savers "some measure of interest income" in the face of rising living costs.

Published on  Tue, Aug 26 2008, 11:25 GMT