Key Pillars of Gold Bull Market Intact
Commodities / Gold and Silver 2012 Jan 19, 2012 - 02:28 PM GMTBy: Adrian_Ash
WHOLESALE PRICES to buy gold and silver with Dollars both eased back after touching new 5-week highs in London, rising 1.3% and 3.0% respectively for the week-so-far as the US currency fell further from this week's 17-month high to the Euro.
Global equities rose for the fourth day running, with shares in Bank of America adding 6.1% in pre-market US trade after it reported better-than-forecast quarterly earnings.
Rising to a two-week high above $1.29, the Euro pushed the price to buy gold for citizens of the 17-nation currency union below last week's finish at €41,500 per kilo.
Talks in Athens between government and investor representatives seeking to agree a 50% writedown of Greek bonds – and the interest rate on replacement debt – entered their second day.
Both the Spanish and French governments meantime raised new loans from bond investors at slightly lower interest rates than at the last time of asking, despite last weekend's downgrade to their credit ratings.
"Momentum [in prices to buy gold] did slow in overnight Asia trade," says a note from one London dealer, pointing to Wednesday's late rally.
"Precious metals lacked direction again," says another, noting how "the conflict between risk-on and risk-off trading" in financial markets is "clearly influencing the indecisive price action" in gold, silver bullion and the other precious metals.
In the commodities market today, European Brent crude oil rose to $111 per barrel after Iran's ambassador to Washington told US television that closing the Strait of Hormuz shipping route is "an option" if Tehran suffers further international sanctions over its nuclear program.
Copper prices meantime rose to a four-month high in London, as reports from China – the world's No.1 consumer of the metal – claimed that Beijing will delay tighter bank regulations in a bid to boost economic growth from the two-year low of 8.9% seen at the end of 2011.
"Investors should look at China," says John Smolinski, manager of the US$2.8 billion TD Canadian Equity Fund, now rebuilding his positions in base-metal and other commodity producer equities.
"Yes, the economy is slowing, housing prices are going down, the level of construction is slowing. But that's probably a good thing. At some point the government officials should get comfortable enough and start easing [credit supply], and that should be good for commodities."
Figures from ICBC – the world's largest bank by stock-market cap – said Thursday that 2.33 million Chinese citizens now buy gold through its gold accumulation savings account.
Launched in April 2010, the program currently holding 22 tonnes of bullion. Comparable schemes in Japan reached 0.7 million accounts at their peak, according to Bruce Ikemizu, manager of Standard Bank Tokyo.
"The Chinese really love gold," said ICBC's deputy head of precious metals Shi Xudong to reporters today.
"The fact that the government has started to clean up the gold market is favorable to our business," he added – pointing to this month's ban on all but two officially recognized Shanghai exchanges for trading gold futures contracts.
Looking more globally, "Gold's key pillars of support remain intact," reckons a research note today from Barclays Capital here in London, "ranging from central bank buying to negative interest rates and rising longer-term inflationary pressures supporting investment demand."
Interest rates on UK government bonds fell Wednesday to fresh all-time lows as debt prices rose, knocking the 10-year gilt yield down to 1.92%.
Consumer price inflation in the UK last month dipped to 4.2% per year, according to official statistics. Bank deposit interest rates have now been negative – after inflation – since May 2008, costing savers 2.5% of their money in real purchasing power during 2011.
Total UK debt – including government, corporate, consumer and banking – rose to 507% of annual economic ouput in 2011 according to new research released Thursday by McKinsey analysts, up from 310% a decade ago and higher than any other major economy including Japan.
Over in the Eurozone, "The EFSF [stability fund] losing S&P's top credit rating proves in my opinion that there are limits to solving the crisis," said German Bundesbank president – and ECB voting member – Jens Weidmann in a speech last night.
The ECB has now bought €217 billion ($279bn) of government bonds issued by Euro member governments since May 2010.
"It is clear that Italian and Spanish mid cap [banks] have no other option than to rely upon the [European Central Bank] for their funding needs," says a note from Morgan Stanley analysts, listing 38 banks who participated in last month's €489 billion loan of 3-year money, quoted by the Financial Times' Alphaville blog.
The ECB will repeat its unlimited offer again at the end of February.
By Adrian Ash
BullionVault.com
Gold price chart, no delay | Buy gold online at live prices
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
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