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London Gold Market Report

Thu, Nov 27 2008, 12:53 GMT
by Adrian Ash

BullionVault.com

Gold Holds Flat as Stocks Rise, US Yields Reach New Record Low; "Crisis Deepening, Instability Looms," Warns China

THE PRICE OF GOLD held flat for US and European buyers early Thursday, recording an AM Fix in London of $813.50 an ounce while world stock markets rose, even as terrorist attacks targeting US and British citizens in Mumbai closed India's stock and commodity exchanges.

US markets will remain closed today for Thanksgiving after gaining 3.5% on Wednesday.

Anti-government protestors meantime seized Bangkok airport in Thailand – Asia's fourth-busiest hub. Beijing's leading economic planner, Zhang Ping, told a news conference that "the impact of the global financial crisis on China's economy is deepening.

"Excessive production halts and closing of enterprises will cause massive unemployment, which will lead to instability," said the Cabinet National Development & Reform Commission chief, adding that GDP growth in 2008 will slip to 9% from last year's 11.9%.

"Support for Gold's Behavior appears to be coming from un-relenting investment demand in view of the global financial market crisis," notes Wolfgang Wrzesniok-Rossbach in his latest report for Heraeus, the global metals refinery group based in Hanau, Germany.

Pointing to the Gold Coins Shortage that continues to frustrate would-be retail investors worldwide, "there is sufficient raw material available," he says, "but it is in the wrong form – namely granules or 12.5kg standard wholesale Gold Bars."

"The limited production capacity for [smaller] investment bars is now turning out to be a hurdle after 25 years of low investor interest. As a result, manufacturers cannot keep up with the sudden surge in demand."

Over in Tokyo today – where the standard Good Delivery bar for wholesale dealers must be of an exceptional 0.999 fineness – Gold Futures added 0.8% as the Japanese Yen recovered half of an overnight dip vs. the Euro.

The Nikkei stock index added 1.9% to reach a 7-session high, while Chinese equities rose 1% after the People's Bank of China slashed interest rates at the fastest pace since 1997's Asian Crisis on Wednesday.

European equities also rose, but government bond prices rose further too, pushing the yield offered by 10-year US Treasuries below 3.0% for the first time in their four-decade history.

Inflation in US consumer prices rose 3.7% in the year-to-November, according to official data. Stripping out "volatile" food and energy prices, so-called core prices ticked 0.1% lower last month from October.

Across the Atlantic, new data today showed the rate of money-supply growth in the 15-nation Eurozone – the world's largest single economic region – rising 8.7% in the year to November.

Down from a three-decade high of 12.3% in late 2007, that was still twice the rate first targeted by the European Central Bank on its foundation in 1999.

"Belief in the intrinsic value of gold in a unprecedented climate of wealth erosion and recessionary fears prompted a scramble for metal," reports the latest Refining Monitor from Mitsui, the precious metals dealer.

"In most cases, [refining] production operated at full capacity 24/7 and some refiners are unable to process new orders until early into the New Year. This frenzied effort was not exclusive to one region."

Surveying nine of the world's largest precious-metal refinery groups, Mitsui reports a surge in demand for – and premiums charged on – gold bars, Gold Coins and, in particular, silver.

The platinum-group metals, in contrast – where almost 70% of annual production goes to meet industrial demand – saw refining orders drop by one-tenth from the summer.

"In India, gold consumption was exceptionally strong at $750 and below," Mitsui goes on, "with dealers regularly unable to get their hands on sufficient metal. Premiums more often than not were significantly elevated.

"However, the surge in the Rupee-denominated Gold Price to record levels towards the close of October undermined much of the demand. Price-savvy punters opted to engage in profit taking...[but] as the Rupee price subsequently dipped 7%, buyers emerged in droves to push local prices to another record level last week."

The Indian Rupee rose vs. the Dollar today regardless of the terror attacks in Mumbai, while the British Pound also made a fresh assault on Wednesday's two-week high at $1.55.

That pushed the Gold Price in Sterling down to its lowest level so far this week at £525 an ounce – up by one-third from this time in 2007.

French, German and Italian investors looking to Buy Gold today saw it trade 3% below Monday's 6-week high at €628.50 as the European single currency rose above $1.29.

Both consumer and economic confidence in the Eurozone fell to a 15-year low this month, the European Commission reported on Thursday.

Yesterday it called for a joint €200 billion stimulus plan, yet to be approved at the national level.

"Sadly it would not do enough anyway to bring European economies out of the gloom for some time," reckons a note from Capital Economics here in London.

Published on  Thu, Nov 27 2008, 12:54 GMT