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Gold Gains on 1st Quarter of 2009 

Commodities / Gold & Silver 2009 Mar 31, 2009 - 09:23 AM GMT

By: Adrian_Ash

Commodities THE SPOT PRICE of gold bullion held inside a $10 range early Tuesday in London, heading into March's close at $922 an ounce as world stock markets rose and the US Dollar have back half of its recent gains.

For the three months starting Jan. 1st, the Gold Price was on track for a 4.7% gain.


The MSCI index of global equities meantime headed for its best monthly rise since the Dot.Com Crash bottomed in Oct. 2002, but it still gave its worst first-quarter performance since 2001.

US Treasury bonds today compounded their worst start to a year since 1996, delivering a total 1.7% loss since New Year's Eve according to Merrill Lynch.

"At this week's G20 summit," notes today's Asian Metals Monthly from Fortis Bank, "the Africa delegation will argue that the IMF should sell twice the amount of gold from its 3,217 tonnes of gold reserves that it currently plans, i.e. more than 800 tonnes, in order to raise funds for debt relief and short-term development assistance."

Despite emotive calls from Ethiopia that these sales "are a matter of life and death", says the report's authors, Virtual Metals in London, "We don't think this proposal stands much chance of being adopted.

"The biggest obstacle to this much fatter sale is that the Crockett Commission, which first put forward the 400-tonne IMF Gold Sale Plan , insisted that it would be ring-fenced.

"To sell more so soon would make a mockery of that claim."

Both China and Russia have now said they favor replacing US Dollars as the world's No.1 reserve asset with a notional basket of different currencies, more in line with the Special Drawing Rights (SDRs) held at the IMF.

But "If China is really worried about the value of its [currency] reserves and wishes to provide a long-term benefit to the world economy and its own citizens' wealth, it has an alternative to the SDR," writes Martin Hutchinson for the ever-contrarian Prudent Bear today.

"The IMF, typically enough, forbids its members from linking their currencies to gold. [But] Governor Zhou should break that prohibition and put the Renminbi on the Gold Standard.

"With $2 trillion in reserves and a structural balance of payments surplus, China can well afford it."

Also looking ahead to Thursday's highly-charged summit here in London, nineteen of the G20 nations are now spending an average 43% of their GDP on stimulus projects, according to the International Monetary Fund (IMF).

Only three of the G20 states, in contrast, have avoided the kind of protectionist measures they agreed not to implement in Washington last Nov., says the World Bank.

Today the US Dollar slipped to $1.3340 per Euro and $1.4130 per British Pound – down 1.7% from Monday's 10-session highs.

For UK and European investors Ready to Buy Gold , that helped cap the price below £643 and €694 an ounce respectively.

Here in London, meantime, the FTSE100 rallied sharply from Monday's plunge, gaining 3.5% but heading towards the end of the first quarter nearly 13% below its start of the year.

Gold Bullion , in contrast stood well over 7% higher for UK investors.

Over in Tokyo, the Nikkei ended the first quarter of the year down more than 8%, while Japanese Gold Prices stood nearly 14% better from New Year's Eve.

Ex-Japan, however, Asian stock prices closed March with their best monthly gain since 1999, up 14% from the end of Feb. and virtually flat for 2009 to date.

"There has been a huge change in sentiment," said one Australian stockbroker to Reuters overnight.

"Rather than anticipating huge sell-offs in the United States, we've been anticipating rallies."

India's Sensex today rose 1.5% to close March unchanged from this time 3 months ago, bouncing from 15% losses at the start of the month.

Indian Gold Prices , in contrast, ended March 10.6% higher from the end of 2008, running to new record highs above 15,000 and then 16,000 Rupees per 10 grams.

"Gold imports during March were zero due to a lack of demand," confirmed Bombay Bullion Association chief Suresh Hundia earlier today.

"Unless the price goes down, there will be hardly any imports," he said of next month's traditionally strong Akshaya Thritiya festival.

Indian Gold Prices today held at Rs 15,100 per 10 grams. Total gold imports to the world's hungriest consumers totalled just 1.8 tonnes between New Year and today, the Bombay Bullion Association said, versus 61 tonnes for the first quarter of 2008.

"We're coming to the tail end of the wedding season particularly in India, and we're seeing no demand," warned Jonathan Barratt, head of Australia's Commodity Broking Services in Sydney, to Bloomberg News today.

"That's a bit of a concern because we're trying to work out what's actually going to hold the Gold Price up."

Over in the United States, however, demand for the world's largest Gold ETF – a trust fund "backed" by physical gold, rather than giving investors clear ownership – swelled yet again this month.

Rising by almost one-tenth to 1,127 tonnes, the volume of Gold Bullion held for the SPDR trust fund has grown by 45% since the start of the first quarter.

Looking at the costs of getting physical ownership instead, "If you buy a kilo bar you have to pay one time the surcharge for producing the bar, which is pretty low," says Wolfgang Wrzesniok-Rossbach, sales director at German refinery group Heraeus, to Thomson Reuters .

"If you buy thirty one-ounce Gold Coins , which would be about equal to a one-kilo bar, you have to pay thirty times that amount."

The wholesale bullion market – typically inaccessible to private investors not using the BullionVault service – deals in bars weighing 400 ounces (12.5kg), thus reducing surcharge costs dramatically.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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