Big Bounce off $26. Possible confirmation of bottom.
Included market update complements of BullionVault.
London Gold Market Report
from Adrian Ash
BullionVault
Tues 3 Jan., 08:35 EST
"Stagnation" a Threat to Gold's Bull Market as Indian Demand Falls 56%, Eurozone
Bank Lending "Collapses"
WHOLESALE MARKET prices to buy gold rose Tuesday morning as dealers in London –
heart of the world's professional bullion trade – returned from the New Year's holiday.
Gold recovered almost all of last week's 5% drop before edging back to $1592 per ounce –
a price first reached in July 2011, when investment demand to buy gold jumped amid the
worsening Eurozone debt crisis and a looming downgrade to the United States' credit rating.
Tokyo and Shanghai remained closed Tuesday, but other Asian markets led Europe in rising
some 1% on average after new data showed a strong rebound in China's non-manufacturing
output last month.
Base metals rallied together with the Euro currency, which rose back above the $1.30 level
first crossed 7 years ago.
Silver bullion prices also rose, gaining more than 10% from last Thursday's near 12-month
low to trade at $28.87 per ounce.
Crude oil held near $100 per barrel, supported by a "risk premium" according to
Commerzbank analysts, as the French foreign minister called for Europe to follow the United
States in tightening sanctions against Iran over its nuclear development program.
"Gold is still trading on risk appetite, rather than acting as a safe haven," Reuters quotes Ong
Yi Ling at Phillip Futures in Singapore.
"Gold is a unique hedge against the debasement of all fiat currencies," says Douglas
Hepworth at Gresham Investment Management, which holds $1 billion of its $13bn
commodities portfolio in gold, speaking to the Financial Times.
"However in a period where you're not having stagflation but stagnation...it will do badly."
In the 17-nation Eurozone, "The money multiplier has collapsed," says Societe Generale's
interest-rate strategy team, pointing to last year's 46% jump in European Central Bank money
holdings compared with just 1.7% growth in private-sector bank loans.
"In other words the ECB is printing money but the transmission to the real economy is
extremely weak."
New debt issuance by Eurozone member states will total €740 billion in 2012 according to
Swiss bank UBS – equal to almost 6% of the 331-million citizen region's gross domestic
product.
Speculators in the currency market last week raised their betting against the Euro to record
levels, according to data from US regulator the Commodity Futures Trading Commission.
The "net long" position of bullish minus bearish bets in US gold futures and options
meantime fell back to is lowest level since late 2008, down by 3.5% to the equivalent of 422
tonnes.
Including private investors trading gold futures and options, the speculative net long position
has almost halved from its record peak of early August.
The gold price has lost 4.1% since then.
"As a percentage of open interest," says today's note from Standard Bank in London, "net
speculative length is currently around 21.8%. This is well below last year’s average of
31.8%, indicating a market that is far from overstretched."
"Since the [gold price] peak on September 9th," says the latest technical analysis from
bullion bank Scotia Mocatta in New York, "we have had lower highs and lower lows, and
thus gold has entered a downtrend.
"[But] while the long-term uptrend off the October 2008 low was breached during [last]
week, it held on a closing basis on the weekly chart. Trendline support sits at $1538."
Gold investment holdings in the world's exchange-traded trust funds crept 0.6% lower in the
week ending Dec. 27th, according to analysis from the VM Group here in London, compared
with a 2.7% drop in the metal's price.
Latest data from India – the world's heaviest consumer of gold, which has no domestic mine
output – meantime said Monday that imports of gold bullion fell by 56% year-on-year in the
last 3 months of 2011, dropping to 125 tonnes and pulling full-year imports some 8% lower
compared with 2010.
"Imports were very bad in October to December," said Prithviraj Kothari, president of the
Bombay Bullion Association, in an interview yesterday.
"People were even selling gold in November" – typically a strong time to buy gold during the
Hindu festival of Diwali and then the wedding season which follows – because for some, "it
was an investment," says Kothari, rather than the religious and social necessity more
typically associated with India's world-leading demand.
After raising its key interest rate 13 times since March, the Reserve Bank of India held rates
at 8.5% in December, following the worst drop in manufacturing output since March 2009.
Price inflation in consumer goods was last seen falling slightly to 9.3% on the official
measure in November.
Adrian Ash
BullionVault
Gold price chart, no delay | Buy gold online at live prices
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 head of research at
BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 and now backed
by the World Gold Council market-development and research body – where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
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.
