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London Gold Market Report

Wed, Sep 24 2008, 11:30 GMT
by Adrian Ash

BullionVault.com

GLOBAL GOLD PRICES slipped early Wednesday, bouncing from an overnight low of $878 to record an AM Gold Fix in London some 0.4% below Tuesday morning.

Asian and European stock markets held flat, meantime, as did the US Dollar against its major competitors on the currency markets.

Crude oil stayed just below $108 per barrel ahead of today's US stockpile inventory report.

"The time has come to cut interest rates [in Europe]," declared German economist Gernot Nerb of the Ifo Institute this morning after the research group's index of business sentiment recorded a three-year low for September.

German bund prices rose sharply on the news, pushing the yield offered by three-month government debt down by 0.13% to 3.77%.

Here in London, two members of the Bank of England's voting committee signaled that they also want to cut UK interest rates at the Oct. 9th meeting.

Consumer Price inflation in the United Kingdom surged to a new 16-year high in August, well over twice the Bank of England's 2.0% target. Year-on-year inflation of the money supply rose to 11.5%.

"I think [Gold] will go back to $1,000 just because the United States is going to have to print so much money to foot the bill for everything they want to do," said Peter Major of Cadiz Financial Services in Johannesburg on the SAfm Market Update radio show last night.

"They've created close to $5 trillion new debt in the last eight years. Looks like they're going to have to add another trillion debt here real quick."

As US law-makers wrangle over the Treasury's proposed $700bn bail-out bill for the Wall Street and foreign bank debt crisis, the US Federal Reserve today lent $30bn to the central banks of Australia, Denmark, Sweden and Norway.

The Fed said it wants to "improve liquidity" in US Dollar money markets, adding to last Thursday's loan of $180bn.

"It's just a matter of time before Henry Paulson, the US Treasury Secretary, starts flooding the market with Treasury securities," says Helmi Arman, an economist at PT Bank Danamon in Indonesia, writing in the Jakarta Post.

"[So] it could be just a matter of time before investors look for a new safe haven...and Gold looks like an interesting proposition.

"After all, the metal has been known as a store of value for as long as anybody can remember."

A spokesman for California's massive Calpers retirement program said Tuesday that it's sticking with its large position in raw materials.

"Our staff has allocation targets and ranges set for 2008 through 2010. Those haven't changed," Clark McKinley told Reuters in an email.

The $240bn fund holds some $1.3bn in commodity futures tracking the S&P's GSCI index – now up 7.3% since New Year's Day.

Gold Bullion has risen 4.7% during that time. In the last two weeks, it's recovered one-half of the 29% drop from March's record high – set at $1,032 per ounce.

In New York, "No one's letting go of their gold," confirmed a senior figure in Comex precious metals to BullionVault on Tuesday.

Gold Futures contracts are being settled in cash only, he said, rather than with physical metal, leaving would-be buyers without the metal they want.

Central banks have also been keeping hold of their gold, despite the recent near-record prices. The 15 members of Europe's Central Bank Gold Agreement can sell up to 500 tonnes per year between them in total. But the current year of the Agreement, due to end this Friday (Sept. 26th), has seen them fall short of that ceiling by at least 130 tonnes.

Last week they sold a total of only three tonnes according to figures from the European Central Bank (ECB). The average sale since the Agreement was first signed in Sept. 1999 stands nearer eight tonnes per week.

Meantime in the active gold markets of Dubai and the Far East, dealers continue to report physical shortages.

Liquidity here in London – center of the world's wholesale professional Gold Bullion market – remains unaffected.

Published on  Wed, Sep 24 2008, 11:31 GMT