Bounces from "Bundesbank Sell-Off"
Rumors; Now's "Not the Time"
to Sell Ultimate Safe Haven
London Gold Market
THE PRICE OF WHOLESALE SPOT BULLION
bounced from an early 2% drop in London on Wednesday, picking up to $889 per
ounce after the German Bundesbank denied rumors it was selling bullion to help
fund the federal government's new €50 billion economic stimulus package.
The US Dollar also fell, slipping to
$1.33 per Euro and $1.43 per British Pound and helping knock the Gold Price in
Euros and Sterling to €666 and £620 per ounce respectively – more than a 5%
discount to the all-time record highs hit on Monday.
World stock markets rose, meantime,
with banking shares jumping sharply on news that the Federal Deposit Insurance
Corp. (FDIC) may launch a "bad bank" to buy up toxic investments from commercial
The Federal Reserve – already
holding $2 trillion of "toxic assets" taken from private-bank balance sheets –
was due to detail its current monetary policy just after 2pm New York time.
"Everybody's talking about a big
financial crisis," said Steffen Kampeter, budget spokesman for German leader
Angela Merkel's Christian Democrat Party in Berlin, late on Tuesday.
"The Bundesbank has to consider,
within its own autonomy, whether it will now use gold and currency reserves for
refinancing or other areas."
A press officer for the central bank
said today that rumors it was already selling gold on Kampeter's demands were
"unfounded", but she added that the bank is "always free to assess its options
on gold sales."
A member of the 15-nation Central
Bank Gold Agreement, the Bundesbank holds 3,400 tonnes of gold on its
balance-sheet – some 11% of Official Gold Reserves Worldwide.
The current CBGA – which limits
European central-bank gold sales to 500 tonnes per year – is due to expire this
Last summer the Bundesbank re-stated
gold's "confidence and stability-building function", especially given the risks
presented by the global financial crisis.
To date, the German central bank has
sold barely 20 tonnes of its 2004-2009 quota, and only ever for minting Gold
Coins sold to the retail market.
Writing in today's Berliner Zeitung
newspaper, "I remind all those who hastily talk about the sale of gold reserves
of the negative experiences of many finance politicians, including Theo Waigel,"
says German finance minister Peer Steinbrück, referring to his predecessor.
Waigel created a political storm –
and lost out to then-Bundesbank chief Hans Tietmeyer – when he proposed
revaluing and selling a portion of Germany's gold hoard in 1997 in anticipation
of European monetary union in 1997.
"Close coordination with the
Bundesbank prevents you from falling into a media trap. I can only advise in
favor of that," adds Steinbrück today.
Earlier this month, Steinbrück
dismissed the UK government's financial stimulus package as "crass Keynesianism"
before agreeing to a €50 billion stimulus in Germany this week.
"Every time the Gold Price is
rising, and every time the Gold Price is at some important level, there is talk
of sales," says Eugen Weinberg in Frankfurt for Commerzbank, speaking to
"But I don't think there is any
chance of it happening. It is not in the interests of the central banks at the
moment to sell this ultimate safe haven."
"We would imagine this is not the
last time a political party or influential public figure asks for similar
[gold-selling] actions in other nations," agrees today's note from Mitsui, the
precious metals dealer, in London – heart of the world's 24-hour Gold-Dealing
Also noting today's interest-rate
decision from the Federal Reserve, however – plus the expiry of February
contracts in the options market – "one would expect some participants to remain
risk adverse for much of today," it says.
Away from the Western Gold
Investment market, meantime, "The sudden upsurge in Gold Prices has seen traders
selling at 3% discount" to spot prices in Mumbai, center of gold trading in
India – the world's hungriest consumer Gold Market – reports the Business
Retail buyers have "stayed away" in
anticipation of lower prices to come, it reports.
"This is a normal phenomena whenever
the price spurts suddenly," says Ashok Minawala, chairman of the All India Gems
& Jewellery Trade Federation. "Retail investors keep off the market, but they
soon absorb the [new higher] price and come back after two to three days."
Gold analyst Bhargav Vaidya at
B.N.Vaidya & Associates – also in the India capital – adds that "Such discounts
are offered only when wholesale stockists have bought at lower prices and run
short of money to keep the ball rolling."
Back in the international markets,
US crude oil futures meantime slid towards $41 per barrel today, ahead of weekly
data showing stockpile inventories.
Government bond prices rose across
the board, pushing yields lower for new buyers but holding above last month's
And back here in London, shares in
the Lloyds TSB banking group added 31% Wednesday morning after Citigroup
analysts rated it a "buy" and said the risk of Bank Nationalization – although
possible – looks "exaggerated [and] more than adequately discounted in the
"Last week gold profited from
safe-haven buying," reckons Peter Fertig, a consultant with Dresdner Kleinwort
in Hainburg, Germany.
"Some investors who bought gold on
those fears might be switching back into stocks," he told Bloomberg News today.
The early 2% drop seen Wednesday "is
related to the movements we're seeing in financial stocks."
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.
Please Note: This article is to inform your thinking, not
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