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London Gold Market Report

Fri, Mar 20 2009, 13:49 GMT
by Adrian Ash

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Gold Hits Four-Week High as India Sells But Western Investors Buy; "Build Your Own Reserve," Advises Marc Faber

THE SPOT PRICE OF GOLD fell hard in early London trade Friday, losing almost 2% from new one-month highs hit overnight at $966 an ounce.

The Spot Gold Price held near its best weekly finish vs. the US Dollar since Feb. 20, however.

For UK and Eurozone investors Ready to Buy Gold today, the price was little changed as the US Dollar rallied on the currency markets, bouncing from its worst one-day tumble since the mid-1980s.

Gold in Sterling and Euros held at £660 and €700 an ounce respectively.

"Demand for small Gold Bars and coins as a long-term insurance product is very firm," notes London wholesale dealer Mitsui in its latest Refining Monitor today.

"The Kruggerand remains at maximum production capacity. For the US Mint, demand for the American Eagle hit 92,000 ounces in January, then 113,500 in February."

The Royal Canadian Mint told Reuters last week that it "quadrupled its capacity" to produce Maple Leaf coins in late 2008.

In the secondary market, US dealers are now charging premiums of 8% and more for plain bullion coins, reports Financial News.

Across in India, however, "Gold plunging 10% from its 2009 high to $900 [earlier this month] did not stop the flow of recycling metal or ignite fresh buying," Mitsui goes on. The world's No.1 jewelry consumer is now "swamped" with scrap metal, driving local quotes down to a $30-$40 discount to London prices.

For Gold Investment, "We think that the Fed's action [this week] will change the focus of the gold market from risk appetite/aversion back toward the Dollar and prospects for inflation," reckons Tom Pawlicki, analyst at MF Global in London, speaking to the Financial Times earlier.

"This outcome could attain greater credence if the stock market has in fact bottomed."

Asian stocks fell Friday morning, while Japan was closed for the Spring Equinox holiday. But European shares managed to crawl higher, with Germany's Dax heading for a 2.3% week-on-week gain.

US crude oil futures dropped $1 to trade right at $50 per barrel. Bond yields were mixed, falling further on UK debt but ticking higher on long-term German bunds.

"Not only gold rose yesterday," notes Walter de Wet at Standard Bank in a note to clients; "all commodities rallied, spurred by the free-falling US Dollar.

"We now believe that, while the Dollar won't free-fall [vs. the Euro], it could approach $1.40 sooner than generally expected."

Looking further ahead for Gold in 2009, new buying "has to overcome the heavy supply of scrap and sharp decline in jewelry demand," de Wet says. "For this to happen, investment demand must continue to grow."

Demand for gold-price exposure through the Gold ETF trust funds rose again Thursday, pushing the volume of bullion used to back the SPDR shares traded in New York up by 19 tonnes to a new record of 1,103 tonnes.

The SPDR's hoard – primarily held, according to its trust-fund documentation – at HSBC Bank in London – has swelled by 7% already this month.

"My stance towards gold is that you should buy a little bit every month," said Dr.Marc Faber, the famously contrarian and gloomy Swiss fund manager – now based in Thailand, and long of gold right through this decade – to India's CNBC-TV18 this week.

"Become your own central bank, because you can't trust Central Banks anymore to act responsibly and maintain the function of paper money as a store for value. You want your own reserve."

Published on  Fri, Mar 20 2009, 13:50 GMT