London Gold Market Report
from Adrian Ash
08:45 ET, Mon 26 April
Low Volatility Gold “Outperforms Stocks & Commodities”, Hits New Euro Highs as Greek Bail-Out Stalls
THE PRICE OF WHOLESALE gold bullion hit fresh record highs vs. the Euro early on Monday, holding onto Friday’s late gains for US investors as the single currency fell on the forex market.
World equities rose, as did commodities. Silver prices were little changed, remaining inside what bullion-bank Scotia Mocatta’s technical analysts call “a two-month up channel.
“[Silver] now looks poised to trade higher.”
Greek government debt meantime fell hard after Germany’s finance minister warned Athens that tough budget savings are “an absolute prerequisite” of the Greek bail-out – estimated at €30-80 billion, and now being discussed by Eurozone and IMF officials in Washington.
Over in Asia, Seoul’s defense minister said “a heavy torpedo [was] the most likely cause” of last month’s sinking of a navy patrol boat near the maritime border with nuclear-armed communist dictatorship North Korea.
“Gold is benefiting from both investors’ preference for a safe haven and to some extent a recovery in risk appetite,” said one Tokyo fund manager to Reuters earlier.
“Despite high prices, physical selling was lacking in gold and surprisingly light two-way business was seen in platinum,” says a Hong Kong dealer in a note.
Recording an AM Gold Fix in London more than 1.2% higher from Friday afternoon for both US and Euro investors, the price also rose to a fresh 30-year high against the Swiss Franc early Monday.
Briefly touching CHF 40,000 per kilo today, gold peaked at CHF 43,600 on 21st Jan. 1980.
“The market is still extremely thin and is therefore susceptible to sharp moves,” says Swiss refinery group MKS in a note to clients.
“Until fresh news on Greece gives gold fresh direction, the yellow metal is likely to remain volatile.”
Gold remains less volatile than both world and US stock-markets, however, as well as less volatile than all major traded commodities, according to new analysis from mining-backed marketing group the World Gold Council.
“On a risk-adjusted basis, the yellow metal outperformed compared with the broader commodity complex and international equities” during the Jan. to March period, write analysts Juan Carlos Artigas and Louise Street.
Gold investment demand “remains high by historical standards,” they continue, noting lower but strong demand for coins and small bars in the first quarter of 2010, as well as “a moderate increase” in wholesale bullion positions adopted by investment funds and institutions.
“Gold’s strong performance in 2009 coupled with other considerations such as its portfolio diversification and inflation-hedge characteristics were likely behind the fresh wave of allocations that occurred at the beginning of 2010.
“Most of the [large 400-oz bar] activity has been in the form of ‘plain vanilla’ rather than structured products, in particular in the form of allocated gold positions” held securely for investors inside market-approved vaults. [Want to join the professionals in buying and owning the safest gold at the lowest prices? Go to BullionVault now…]
Back in Monday’s action, major developed-world government bonds rose together with equities and broad commodities as crude rose back above $85 per barrel.
Ten-year yields on Greek government debt leapt however as prices sank, hitting a new 13-year record above comparable German debt at 9.58% while the Euro currency dropped half of Friday’s late-rally from 11-month lows to the Dollar.
The Euro also fell to a new 8-month low vs. the Pound. UK investors saw gold drop 0.7% from last week’s finish as Sterling rose, but the metal still recorded its best London Gold Fix since the morning of 16th April – just before the US government’s legal action against Goldman Sachs sparked a sharp drop in prices.
Latest data from US regulator the CFTC says that hedge funds and other large speculative players in Comex gold futures and options cut their net betting on higher prices by more than 1 contract in every 20 in the week-ending last Tuesday.
Small speculators, in contrast, extended their “bull ratio” slightly, taking it to a 21-month high of nearly 74% of all Comex gold contracts they held.
“Gold has seen a decline in speculative activity. So has silver,” note Leon Westgate and Walter de Wet at South Africa’s Standard Bank today.
“As a percentage of open interest (OI), the net long speculative position stands at 34.4%…well below the 42% of OI hit in Sept. 2009 and slightly less than the average 35.8% seen over the past 12 months.”
With speculative pressure in the gold market lower than in either silver or crude oil, “We favor gold,” says Standard.
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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 – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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