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London Gold Market Report

Wed, Jan 7 2009, 13:33 GMT
by Adrian Ash

BullionVault.com

Gold "On Defensive" But 2009 Investment Demand Set to Escalate as Global Depression Bites

THE PRICE OF WHOLESALE GOLD BULLION slipped from its best Dollar-level so far this week Wednesday lunchtime in London, ticking back to $861 per ounce as European stock markets fell over 1%.

The Dollar ticked lower meantime from yesterday's 3-week highs vs. the Euro and Yen, while crude oil held above $48 per barrel.

The Gold Price in Euros slipped €10 an ounce from Tuesday's 5-week high of €643.

"With the Euro still under considerable weakness on the currency markets, plus the re-weighting of the DJ-AIG commodity index influencing sentiment, gold is certainly on the defensive this week," notes the latest Gold Investment analysis from Mitsui.

"Given how fast and furious investors piled into positions in December, it is not too surprising that some of these players are now being washed aside."

Lower interest rates from the European Central Bank (ECB) now look a certainty at next week's meeting after factory input prices across the 16-member currency union fell a record 1.9% month-on-month for Nov.

Germany today reported a sharper-than-expected rise in unemployment.

Looking further ahead for Gold in 2009, "The growing trend in wanting some gold as a store of wealth may start to snowball," noted London market-maker ScotiaMocatta early last month.

The global financial crisis seems "so deep rooted," it went on, "that demand for gold as a safe haven is expected to escalate."

Cash savings today came under fresh attack after Taiwan cut its key lending rate to 1.5%, an all-time low.

The Bank of England may cut UK rates to the same level on Thursday – a new record low in its 300-year history and precursor to Quantitative Easing.

Across the G7 leading economies, average interest rates ended 2008 at a record low of 1.25% according to Reuters analysis.

Treasury-bond investors, meantime, face a deluge of new issues in 2009 reports the Financial Times, risking a collapse in prices plus sharply higher interest rates for new government debt worldwide.

The US Treasury needs to borrow $2 trillion from the bond market this year. Eurozone governments will issue $350 billion-worth of bonds in the first quarter alone.

Wall Street stock-market futures also pointed lower on Wednesday as the private-sector ADP report for Dec. showed a record 693,000 drop in US payrolls.

Bombay's Sensex index closed more than 7% lower the chairman of I.T. firm Satyam said its balance-sheet is stuffed with "fictitious assets" and "non-existent cash".

Aluminum giant Alcoa yesterday announced a 13% cut to its workforce. Here in London today, retail bellwether Marks & Spencers announced the closure of 27 stores with the loss of 1,200 jobs.

Australian copper miner Aditya Birla Minerals says it's halting production at the Mount Gordon site – saving up to US$3 million per month – after the "significant" fall in base metal prices.

"If everything else drops by 50%, then gold's [2008] performance of 6% in Dollars and much more in other currencies is very respectable," said Dr.Marc Faber – the Swiss wealth manager and investment author now based in Thailand – to Bloomberg last night.

Today, however, "I would rather buy a basket of industrial commodities right now," he went on, "because they have fallen so fast and have greater potential to bounce."

Taiwan's latest cut to interest rates came after exports sank 42% in Dec., whacked by a record collapse in electronics shipments.

Business leaders in India fear the country could lose 10 million jobs before April as the global economic depression bites.

Brazil's industrial output sank 6.2% in Nov. from a year earlier, the official data agency said yesterday, the sharpest drop since the last recession in 2001.

Published on  Wed, Jan 7 2009, 13:34 GMT