Bounces as Protectionism &
Money-Printing Spread; Fund
Buying Seen to Be "Long-Term"
London Gold Market
THE WHOLESALE PRICE of gold bullion sank 2.3% in
early London trade on Monday, bouncing off $905 an ounce as world stock
markets also tumbled.
German and French equities dropped more than 2% by lunchtime after losing
one-tenth of their value in January.
With much of the City's senior management kept at home by the worst snow-fall
in 18 years and with wild-cat strikes hitting UK energy facilities over the
hiring of foreign workers London's FTSE100 index slid 1.6%, dragged lower by
"Reasonable estimates of the shortfall in private [US] demand are on the order
of three times the $800 billion stimulus package," writes 2008 Nobel
prize-winner Paul Krugman in his blog for the New York Times.
"There is a short-run case for [economic] protectionism and that case will
increase in force if we dont have an effective economic recovery program."
President Obama denied at the weekend that establishing a "Bad Bank" to take
toxic assets off private financial balance-sheets could cost US tax-payers $4
Today the Chinese premier Wen Jiabao told the Financial Times that "We may
take further new, timely and decisive measures before an economic retreat"
after new data showed 20 million rural migrants losing their jobs and
returning home from China's once-booming cities.
Beijing is already running a stimulus package worth $586 billion, announced in
"Such rescue efforts so far have failed to stem financial sector problems,"
notes Christine Li, an analyst at Moody's the credit ratings agency here
"Investors have continued to shift their money to safe havens such as
government bonds and Gold."
Nick Moore, chief commodities strategist at RBS the No.1 UK bank, now 70%
owned by the state agrees.
"We view markets as increasingly concerned about the implications of
aggressive monetary pump-priming that is going on in the US and elsewhere.
"In these treacherous markets, making money is not necessarily the prime
objective. Stemming losses and capital preservation are also at play and gold
should satisfy these objectives."
Back in Monday's action, US crude oil futures fell to $40.50 per barrel while
government bonds rose across the board and what one trader last week called
the "New Risk Dynamic" in foreign exchange markets continued albeit in
January 2009 saw the sharpest-ever divergence between the movement in Gold and
in Europe's main currency vs. the Dollar.
Today the Euro rose against the US Dollar and Japanese Yen, even as the Gold
Price fell. The single currency also bounced two-pence against the British
Pound after losing 7% of its Sterling value in five sessions.
The Gold Price in Euros fell sharply from new all-time highs above 628 an
ounce. But at the Asian opening, gold recorded new all-time highs against the
Australian and Canadian Dollars, as well as the Swiss Franc.
"According to our traders, today's [gold] selling emanated from Chinese
traders," says John Reade, analyst at Swiss giant UBS, in a note to clients.
Returning from China's long Lunar New Year celebrations, "We suspect they saw
Euro-Dollar lower, gold much higher and sold short-term gold positions they
owned," reckons Reade.
"The sharp move lower triggered stops on the electronic futures market.
[However] we expect safe haven buying to support gold and hold our one-month
forecast at $900."
"Gold broke the $916 resistance on Friday evening and surged higher," adds
today's technical note from Mitsui here in London, "getting right to our
target of $930 where it paused and then closed a few dollars lower.
Looking ahead for Gold in 2009, says Mitsui, "$930 was the October high and a
break of this level would project us back to four-figure gold."
The precious metals dealer now pegs support at $900 an ounce, adding that "ETF
investors are still convinced of the longevity of this market."
Last week saw the gold held at various London bank facilities on behalf of New
York's SPDR gold trust swell by 11 tonnes.
Daily trading volume in the world's largest Gold ETF reached a 3-month peak,
as did the Dollar-gold price on what wholesale dealers and brokers confirmed
as strong demand from investment institutions.
Twenty-two out of 31 traders and analysts interviewed worldwide by Bloomberg
News at the end of last week forecast a higher Gold Price by this Friday.
Eight advised selling, the newswire says. One was neutral.
Over on the US Gold Futures and options market, latest figures show hedge
funds and other "Large Speculators" growing the net long position to a
five-month high in the week to last Tuesday, up almost three times over from
the 41-month low of mid-November.
That coincided with gold falling to $680 an ounce,
then a one-year low. The Gold Price has since risen by more than one-third.
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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