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London Gold Market Report

Thu, Oct 29 2009, 13:32 GMT
by Adrian Ash

BullionVault.com

Gold Bounces from 3-Week Low, Dollar Retreats on Stimulus GDP Result

THE PRICE OF GOLD rose $10 from last night's 3-week low of $1027 on Thursday morning in London, gaining as Asian stock markets closed the day 1.5% lower and the United States reported an end to its economic recession.

GDP growth during June-to-Sept. was estimated at 3.5%, much-stronger than analysts forecast, as domestic prices also rose sharply – up 1.6% from a year earlier.

Ahead of today's $31 billion auction of new 7-year debt, the yield on mid-dated US Treasury bonds ticked up to 3.05%.

Seven-year yields have averaged 2.77% in 2009-to-date.

"[Gold] found some physical buying in Asia overnight," says one dealer.

"Major price support is seen at $1021 from the early highs of gold in September," says Scotia Mocatta in its daily note.

Over on the currency markets on Thursday, the Dollar fell hard on the Census Bureau's GDP report, capping the rebound in Gold for non-Dollar investors.

Sterling gold prices rose to £630 an ounce from Wednesday's one-month low at £626.

The gold price in Euros crept back above €701 an ounce.

'The Euro is not particularly strong relative to the Yen, the Swiss Franc, the Canadian or Australian Dollars or several other currencies," noted European Central Bank policy-maker Christian Noyer yesterday.

"The question of the relationship with the Dollar is not specific to the Eurozone."

After the US Dollar rose for 3 sessions running late Wednesday, "Ongoing profit taking may continue to weigh on the bullion market, should the Dollar remain firm," said HSBC analyst James Steel in a note.

"The risk of adding longs under current financial conditions, at current prices, surely outweighs the benefit," concurred Walter de Wet at Standard Bank.

"We foresee more risk aversion towards the end of the week."

Holdings in the SPDR Gold Trust – the world's largest gold ETF – shrank by one tonne for the third day running on Wednesday, dropping to 1104 tonnes.

Open interest in US gold futures also fell to a 3-week low, dropping below half-a-million contracts.
 
"Gold is not an inflation hedge. It is a crisis hedge," says Graham Bentley, head of investment marketing at the £35 billion Skandia UK, "and crises do not necessarily involve inflation.

"Despite last year's market mischief, we are not in the same league as the 1970s' hyper-inflation and global recession. On the contrary, evidence that the current recession is over is visible across the globe, if less so in the UK."

New data from the Bank of England here in London today showed lending to non-financial companies shrinking by 3.4% from a year earlier in Sept. Lending to UK households rose by 2.0% annually, the slowest pace on record and down from a 10-year average of 10.5%.

Consumer confidence in the 16-nation Eurozone came in below expectations. New US jobless claims for last week were also worse than analysts forecast.

A jump in US imports – rising in price by 10% annualized – was the main drag on America's third-quarter GDP growth.

Consumer spending led the 3.5% headline, driven by big-ticket shopping on white goods and cars, with the "cash for clunkers" program funding $4,500 rebates on auto purchases.

New spending on housing projects rose 23% annualized. The $8,000 tax credit currently given to first-time buyers – and due to expire on Nov. 30 – is currently being debated in Congress.

European stock markets reversed early losses on the news, and US stock futures turned upwards.

Australia's No.1 gold mining firm Newcrest today said it's looking for acquisition targets and forecast rising prices ahead, but said its strong local currency is hampering domestic profits by raising costs.

Gold Fields Ltd – Africa's No.2 producer – warned that proposed energy-price hikes by South Africa's state-owned Eskom will sharply increase its production costs.

"It's too early to give the full impact on the business, and we are evaluating it," CEO Nick Holland told reporters, forecasting a 17% increase in costs before accounting for "knock-on" effects.

Gold and platinum production in South Africa – the world's No.3 and No.1 respectively – was briefly brought to a halt in early 2008 by country-wide power cuts, caused by a lack of infrastructure investment and maintenance.
 

Published on  Thu, Oct 29 2009, 13:33 GMT