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London Gold Market Report

Thu, Oct 22 2009, 12:47 GMT
by Adrian Ash

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Gold's "Yo-Yo Action" Confirms Buying Interest; India & China Show Rising Demand

WHOLESALE INVESTMENT gold prices bounced from an early dip in London on Thursday, rising to $1057 an ounce as world stock also turned higher but remained more than 1% down on the day.

The US Dollar slipped back beneath $1.50 per Euro, a 14-month low.

The price of gold in Euros held above €705 an ounce, higher by more than 12% and 25% respectively from the single currency's two previous $1.50 exchange levels.

"[Gold is trading] in a yo-yo fashion within last week’s range of $1044 to $1070," says one London dealer today.

"Despite some wide swings yesterday, it did not test either side of this range," says another.

"While gold is meeting resistance to a move higher, buying interest remains," says Walter de Wet at Standard Bank.

"This is evident from the failure of the metal to break below $1050."

Government bonds were little changed early Thursday as stock markets fell, catching up with last night's late drop on Wall Street.

Crude oil held above $80 a barrel. Gold priced in Sterling recovered from Wednesday's near-3 week low of £632 an ounce, rising as the Pound eased back from its best levels in a month above $1.66 on the forex market.

Yesterday saw institutional investors buy £7 billion of 50-year UK gilts, stretching the British state's repayment schedule out to 2059 at a rate below 4.2%.

UK public borrowing is set to rise 75% this tax-year to a total of £220bn, the Financial Times reports. Using newly created money, the Bank of England has already bought £142bn worth of government debt since April, some £6bn more than the volume of new debt issued so far.

"Is there any stopping the powerful bull market in precious metals?" asks Dr. Michael Berr, investment professor and ex-Wall Street professional in Forbes magazine.

"If the economic fundamentals tip decisively in favor of deflation, a stronger Dollar (and lower gold price) is indeed possible. [But] Washington will attempt to print its way out of its debt-induced predicament.

"Gold has [already] powered its way to new nominal highs in spite of the greatest economic contraction since the Great Depression."

Over in Beijing on Thursday, new data showed China's GDP expanding by 8.9% in the third quarter, up by one percentage point from April to June.

Private gold buying by Chinese households has more than tripled in value as China's annual economy doubled over the last 10 years. (Read about China's Galloping Gold Consumption here...)

Last year China imported 112 tonnes of gold, an executive at China Minsheng Bank said today, adding to the record 282 tonnes coming from its domestic mines – now the world's largest source of new metal – as mainland private demand leapt.

"Exploration investment has only picked in the past two years, so mine supply output growth will not keep pace with [Chinese] demand," said Lila Lu at the Gold Outlook 2009 conference, quoted by Dow Jones.

"For the next five years, China will still be a net importer."

Private gold investment demand rose 176% last year, Lu told the conference. Jewelry demand rose 21% to 326 tonnes.

Worldwide, "Only a tiny handful of huge gold discoveries have been made in the last decade," writes Marc Davis of the BNW Newswire at Resource Investor.

"The advent of $1000-plus gold prices still won't speed up 3-7 year mine developmental timelines – ones that invariably involve time-consuming regulatory hurdles."

"No doubt that is true," counters Barry Sergeant for MineWeb in Johannesburg, "but a good number of the world's biggest gold deposits are not being mined to the full, or not being mined at all."

Saying that these large gold deposits "cry out for capital," Sergeant lists eight huge reserves currently unworked. "The top runners include the Witwatersrand Basin," he notes, "still the world's biggest gold province, but with the metal found increasingly at depth, where it may be uneconomic from a cost viewpoint, and simply too dangerous to extract."

Meantime in India, former world No.1 for gold demand but lagging China during the first-half of 2009, the recent Hindu festivals of Dhanteras and Diwali saw private gold buying rise slightly from last year's depressed levels, the World Gold Council said on Thursday.

Sales rose 6% to 56 tonnes last week, according to Darmesh Sodah, director of the WGC's local office.

Retail jewelers Auro Gold moved into coins this year, the Hindu Business Line reports, growing its sales by 10-20%.

"People preferred to buy light weight jewelry," said another dealer. "[But] there was also buying interest in gold coins of smaller denomination."

Published on  Thu, Oct 22 2009, 12:49 GMT