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London Gold Market Report

Wed, Apr 22 2009, 13:23 GMT
by Adrian Ash

BullionVault.com  |  View company's profile

Gold Steady in Dollars, Gains in Sterling as Record UK Debt Sales Face Buyers' Strike

SPOT PRICES for physical gold held in a tight range early Wednesday in London, trading $10 below yesterday's one-week high at $885 an ounce for US investors.

European equities turned lower, meantime, on news of sharp profit-drops at Boeing and AT&T, while crude oil held its breath below $47 per barrel ahead of today's US energy inventory report.

Government bonds ticked lower, pushing yields higher everywhere but particularly on UK gilts as the New Labour government – which famously kick-started This Decade's Bull Market in Gold by selling half the nation's reserves at rock-bottom prices – said its net borrowing will reach one-eighth of GDP in 2010.

Already four times higher from 1999, the Gold Price in Sterling regained Tuesday's two-week highs at £614 an ounce as the Pound fell hard on the currency market.

By 2015, the Treasury forecast, Britain's outstanding debt will equal some 79% of the annual economy, the worst level since World War Two and greater than the level which forced the last Labour administration to seek IMF aid in 1976.

For 2009-10, the government will issue a record volume of new gilts – perhaps up to £260 billion ($377bn) – resorting to "syndicated sales" through commercial banks in a bid to avoid a buyers' strike.

New data meantime showed UK unemployment rising to its worst level at 2.1 million since May 1997, when New Labour came to power.

Chancellor Alistair Darling meantime hiked the duty charged on petrol, and raised the top-rate of income tax to 50% while vowing to cut pensions-tax relief on incomes above £100,000 per year ($144,500).

Much harsher tax hikes now look certain to hit middle- and lower-income families, commentators agreed with the Tory opposition, after the 2011 election.

"[Entrepreneurs] are just bled dry of cash," the Financial Times this week quoted Paul Tustain, founder of online gold market BullionVault – which just received the Queen's Award for Enterprise 2009: Innovation.

"We are stuck with an environment that [threatens to] cripple us."

On the monetary front today, and ahead of the British government's record peacetime deficit plans, the Bank of England said money-supply growth in the UK slipped one per cent in March to 17.6% year-on-year.

That compares with the quarter-century average of 10.5%.

The Bank attributed the growth to "strong increases" in banks' internal deposit and lending business, "including securitization special purpose vehicles."

Over in the wholesale precious-metals market, meantime, "Gold is finding it increasingly hard to break above $890," notes Walter de Wet at Standard Bank here in London today.

"While scrap selling has dried up, buying activity in the physical market has not picked-up substantially. But ETF Gold Buying continues."

"Gold continues to have very little direction of its own," agrees today's note from London  gold dealers Mitsui.

"The market is seeing extremely low volumes traded and the inverse correlation with equities remains very strong."

Looking further ahead for Gold in 2009, however, "The characteristics of gold make it a good hedge in the face of current economic uncertainty," says Alex Hoctor-Duncan, head of retail sales in London for BlackRock wealth management, quoted by Bloomberg.

"The growing wealth of emerging economies is likely to support jewelry demand in the future, while financial turmoil and inflationary pressures underpin investment demand."

Published on  Wed, Apr 22 2009, 13:25 GMT