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London Gold Market Report January 27, 2009, By: Adrian Ash, BullionVault |
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THE SPOT PRICE of physical gold recovered half of an early 1.5% drop in London on Tuesday, moving back towards $900 an ounce as both the US Dollar and Japanese Yen also strengthened.
Crude oil crept back above $46 per barrel, but soft commodity prices slipped.
US stock futures pointed higher, and government bond prices also rose, pushing the yield back below 2.60% on 10-year US Treasuries and back below 3.28% on 10-year German bunds.
"As the price of money (interest rates) is held down by central banks," notes Ashraf Laidi for CMC Markets in London, "the price of its competitor – Gold – pushes higher."
The gold price is rising "on the lack of yield reward in monetary alternatives," he believes, plus "excess printing by the Fed, Bank of England, and European Central Bank."
After Monday's deluge of job-loss announcements worldwide – estimated at 67,000 by the UK press – new US president Barack Obama will today ask law-makers in Washington to speed their approval of his $825 billion stimulus package.
The London Treasury said it will announce a bail-out package for the UK car industry at 15:00 GMT. Earlier today in Tokyo, the Japanese government announced a fresh $16.7 billion package of aid, offering to buy shares in non-financial companies to support their capital base.
Tokyo's Nikkei stock-market index leapt nearly 5% on the news, while Gold Futures traded at the Tocom exchange added another 1.4% – touching a new 13-week high above ¥2,600 per gram.
The gold price measured in UK Pounds Sterling dropped more than 5% meantime before bouncing off £628.50 an ounce.
For European investors now Ready to Buy Gold, the price bounced from a two-day low of €672 an ounce, some 4% below Monday's new all-time record at €702.
European stock markets fell sharply, meanwhile, losing almost one-half of Monday's gains.
"Two years ago nobody could see the problems and the risks," reckons Marc Weil, a senior analyst at the Oliver Wyman consultancy based in New York.
"It is clear now that the financial services industry is like no others and anyone that poses systemic risks needs tighter regulation."
Tighter regulation across international boundaries will top the agenda at the World Economic Forum summit in the Swiss Alpine resort of Davos this week, where more than 40 heads of state and senior government officials will meet with 36 finance and central-bank chiefs.
Business delegations will be sharply down from last year, but 1,400 executives are still expected to attend.
"This year's meeting is likely to be the most significant in the WEF's 37-year history," reports UK banking bible The Banker.
"To employ a highly relevant saying, nothing concentrates the mind so firmly as impending execution."
Today saw one Nicholas Cosmo – head of Long Island finance firm Agape World Inc. – arrested on charges of running a $400 million "Ponzi scheme".
Ex-CEO of Merrill Lynch John Thain sent a memo to his former employees defending the Thundering Herd's sale to Bank of America, and also promised to reimburse BoA for the $1.2m he spent renovating his office 12 months ago.
Those expenses – including $35,000 on a chest-of-drawers – now look "a mistake in the light of the world we live in today," Thain says.
"The Banking Crisis saw gold make substantial gains in the face of a stronger Dollar," report Carl Firman, Matthew Turner and Gary Mead in the latest Fortis Bank Metals Monthly from the Virtual Metals consultancy in London.
"Such a crisis is good for gold, [but] we're not so sure about an economic crisis, and as such we're quite bearish on gold as deflation tightens its grip.
"Central bank sales are very weak" however, the report continues, "which is supportive for Gold Prices."
On VM's math, meeting the full-year ceiling of 500 tonnes by end-Sept. – when the current Central Bank Gold Agreement reaches its end – would have required sales of 134 tonnes since Sept. '08.
"The current rate of selling, if sustained, would see final year sales of just 181 tonnes. This seems eminently plausible."
On the Gold Investment side, in contrast, latest data from the world's largest exchange-traded gold trust, the SPDR in New York, shows "paper gold" investors – predominantly institutional funds barred from owning physical assets outright – growing their allocation by 6.7% so far this month.
Here at BullionVault, private individuals wanting the liquidity and ease of live 24/7 trading online – plus the security of outright ownership – have added almost half-a-tonne of physical gold bars to the stockpiles held securely in New York, London and Zurich since New Year's Day.
"Gold is traditionally regarded as a store of value," notes John Authers in his Short View for the Financial Times today, "so if you're nervous about possible devaluation in the Dollar, then one logical thing might be buying gold as a hedge."
Looking at the two-year correlation between Gold Prices and the Euro/Dollar exchange rate, however, "the relationship has broken down quite considerably in the last few weeks," he adds, "with gold going on a rally even as the Dollar is strengthening."
One reason might be rising expectations of inflation, Authers says, pointing to the 0.75% annual inflation forecast over the next 10 years by US Treasury Inflation-Protected Securities – sharply higher from the "deflation scare" shown by the TIPS market in early December.
Adrian Ash
BullionVault
Gold price chart, no delay | Gold in 2009
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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