Gold Market Retreat Good in the Long Term

By: Ben_Traynor

WHOLESALE MARKET gold prices hovered just below $1665 per ounce Monday morning in London, having failed to hold onto gains in earlier Asian trading, as stocks and commodities also ticked lower along with the Euro, which retreated from recent highs following news of a political scandal in Spain.

Silver erased most of Friday's gains this morning, dropping below $31.60 an ounce.

The gold price in Euros meantime regained some ground this morning as the Euro fell against the Dollar. Last Friday, gold in Euros dropped to its lowest level since May last year as Euro-Dollar touched a 14-month high.

In New York, the so-called speculative net long position of Comex gold futures and options traders fell to its lowest reported level since last August during the week ended Tuesday 29 January, weekly data published Friday by the Commodity Futures Trading Commission show.

The spec net long is calculated at the difference between 'bullish' long and 'bearish' short contracts held by traders such as hedge funds which are classified as 'noncommerical', and is regarded as an indicator of short-term sentiment in the derivatives markets.

"The 'weak hands' are further retreating from the gold market, which is a good thing in terms of the long-term price prospects," says today's commodities note from Commerzbank.

Spanish prime minister Mariano Rajoy, who travels to Berlin today for talks with German chancellor Angela Merkel, denied allegations in the Spanish press over the weekend that he received illegal payments from a slush fund run by his Popular party (PP).

Support for the PP has fallen six percentage points to 24% since the allegations were made, according to a poll published by Spanish newspaper El Pais, while 77% of those surveyed said they do not approve of Rajoy.

The number of unemployed in Spain meantime rose to 4.98 million last month, official figures published Monday show. Last month brought news that the unemployment rate rose to record levels above 26% towards the end of 2012.

In Italy, prime minister Mario Monti today criticized his predecessor Silvio Berlusconi's proposal to reimburse taxes paid on primary residences that were levied by Monti.

"Berlusconi wants to buy the votes of Italians with the money that Italians had to turn over to cover up the shortfall left in the public accounts by Berlusconi," Monti said.

A poll published last week showed Berlusconi had cut the lead of front runner Luigi Bersani to five percentage points ahead of elections in three weeks.

Bersani's Democratic Party (PD) has faced criticism for allegedly receiving funding from Siena-based Monte dei Paschi (MPS), the world's oldest bank dating back to 1472, which is currently being investigated for covering up losses on derivatives trades and overpaying for its 2007 acquisition of Banca AntonVeneta.

MPS lost an estimated €2 billion-plus in 2012, following a €4.6 billion loss in 2011.

In Germany meantime, politicians have expressed skepticism over whether to accede to Cyprus's request for a bailout from the European Union and International Monetary Fund.

"Without the introduction of effective controls on money-laundering and urgently needed structural reforms, we need not even discuss financial aid," Rainer Bruederle, a member of the Free Democratic party which shares power with Merkel's party, said over the weekend.

"Cyprus is based on a business model that damages us all," added Johannes Kahrs of the opposition Social Democrats.

"Yet it is now supposed to be saved by the EU. The SPD will not support that."

"There's general unease...about the fact that Cyprus takes in a good deal of cash from Russians," explains a note from Standard Bank.

Over in India meantime, traditionally the world's biggest gold buying nation, Rupee gold prices fell to five-month lows Monday as the Rupee touched its highest level against the Dollar since October.

At the start of the year Indian gold dealers imported increased quantities of gold ahead of a rumored import duty hike, with the authorities duly raising the duty from 4% to 6% last month.

"Not many deals are happening [at the moment]," one dealer at a state-run bullion importing bank told newswire Reuters this morning.

"[The] market has to clear the old stocks, which could finish this week."

By Ben Traynor
BullionVault.com

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.(c) BullionVault 2013

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