Physical Gold Bullion Demand Needs Respite in Prices As Chinese New Year Looms
Commodities / Gold and Silver 2010 Feb 10, 2010 - 07:56 AM GMTBy: Adrian_Ash
THE SPOT PRICE of wholesale gold bullion held in a tight range Wednesday morning in London, slipping back from near 4-session highs for US and Euro investors as the Dollar bounced on the forex market.
European equities cut their early 1% gains. The Euro dropped from near 1-week highs after new US data showed a surprise in new mortgage applications.
Crude oil fell back from $74 per barrel. Government bonds ticked higher, pushing US and UK yields lower.
"Shorts were eager to cover," said one Hong Kong bullion dealer this morning after the gold price touched $1082.50 an ounce.
"Fresh buying from Europe lifted both silver and gold."
Japan's Tocom futures exchange – which saw gold prices hold flat and remain 5% lower for 2010-to-date – will be closed on Thursday for a national holiday.
China's financial markets are then closed for next week's Lunar New Year celebrations.
"Our short-term view [on gold bullion] is bearish," says today's Commodities Daily from Standard Bank, because the current "strong physical demand" will likely fall away after next week's Chinese New Year.
"This kind of respite in the gold price will allow [the Middle East and Indian] markets to recuperate a little bit," says Jessica Cross, CEO of London's VM Group consultancy, speaking on Mineweb's weekly podcast.
"Because at the end of the day we have to have physical coming off the market, and those physical areas really do support the supply demand balance in the long run."
On the political front early Wednesday, "We've had to face up to the fact that what is now a Greek [government deficit] problem could turn into a European one," said a German official quoted by the Financial Times.
Ahead of tomorrow's Eurozone economic summit – called by new EU president Herman van Rompuy last month, and now to be attended by European Central Bank president Jean-Claude Trichet – "It's more about finding firewalls, containing the problem, than principally about helping the Greeks," the spokesman added.
The British Pound meantime dropped almost 1.5¢ inside two hours after the Bank of England's latest Inflation Report forecast a lower range for UK economic growth, but a rise of 3.5% year-on-year in the cost of living.
"Because asset purchases [aka Quantitative Easing] injected money into the economy," said BoE governor Mervyn King at this morning's press conference, "money supply growth has been stronger than it would otherwise have been.
"From their trough [of last March, when QE began] equity prices have risen by about 50%," noted King. "Real estate prices have risen by about 10%."
Last week the Bank "left the door open" to extending its asset purchase program of £200 billion. Almost all of the new money created spent on UK government gilts, and equals more than the entire government deficit for the last 12 months.
The gold price in Sterling today rose back above £690 an ounce – a level first reached as the Bank of England moved to begin queasing 12 months ago.
"I'm convinced the US government will go bankrupt, but not tomorrow, and before they do they will print money [and] you'll get a depression with very high inflation rates," said Thai-based money manager and investment author Dr. Marc Faber at Russia's Troika Dialog Forum in Moscow last week.
"If you ask me about the correction in the gold market, sure, we already corrected 10% from the peak and it could last somewhat longer.
"But when I look at Mr.Obama, Mr.Bernanke, Mr. Tim Geithner and Mr. Larry Summers, the one thing I will never do in my life is sell my gold."
Writing back in January 2008, "The gold bull market will come to an end when sovereign wealth funds – sick and tired of their investments in financial stocks – will final purchase gold," said Faber in his closely-followed Gloom, Boom & Doom letter.
At the end of 2009, China Investment Corporation – the world's largest single fund of sovereign-government wealth – moved $156 million of its $300bn assets into New York's SDPR Gold Trust ETF, regulatory filings of its US-listed positions show.
CIC also took small positions in gold mining stocks AngloGold Ashanti and Kinross, as well as a $116m stake in the Market Vectors gold sector tracker.
Beating the $1.8bn position in former investment bank Morgan Stanley, the sovereign Chinese wealth fund's largest US-listed position – worth just over 1% of its entire holdings at $3.5bn – was in Canada's copper, coal, zinc and energy conglomerate Teck Resources.
New York hedge-fund manager John Paulson has met with "lacklustre investor response" to his new gold investment fund, today's Wall Street Journal reports, raising only $90 million since launching at the start of January.
Paulson, whose fund management group reported some $20 billion in profits for 2007-2008 after betting against the subprime mortgage market, has put $250m of his own money into the fund, hiring former UBS star John Reade as his chief metals strategist.
By Adrian Ash
BullionVault.com
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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 2010
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