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 London Gold Market Report from Ben Traynor @ BullionVault Wednesday 22 February 2012, 08:30 EST London Gold Price Stabilizes After U.S. Rally, Markets Unsure How To Interpret Greece Deal U.S. DOLLAR gold prices held steady just off $1760 an ounce during Wednesday morning trading in London, after a rally in Tuesday's US session saw gold climb 1.3%. Silver prices softened slightly but held above $34 per ounce – having through that level on Tuesday following the Greek bailout announcement. Stocks and commodities edged lower this morning, while government bond prices gained. Gold prices "[ran] into sell stops at the $1760 level," says one gold dealer here in London. "We don't see a substantial amount of enquiries in the physical market," adds Dick Poon, Hong Kong-based precious metals manager at refiner Heraeus. However, "a break of $1763 will bring in fresh buying," reckons the latest technical analysis from bullion bank Scotia Mocatta, "looking for a test of November high $1803." Greece has been given nine days to meet a list of conditions before it can receive its €130 billion agreed by Eurozone finance ministers yesterday. The list includes sacking underperforming tax collectors and readying state-owned companies for privatization in the summer, the Financial Times reports. "The [Greek] deal may have removed near-term uncertainty," adds Helen Roberts, head of government bonds at F&C Asset Management in London, "[but] it's a hard environment to implement austerity measures. It's a worry that the Greek government might not be able to do much even though they are fully committed to the agreement." "The greatest risk to the downside that we see for gold is a fresh Greek crisis," warns HSBC precious metals analyst James Steel. Here in London, two members of the Bank of England's Monetary Policy Committee voted against its decision to expand its quantitative easing program by £50 billion earlier this month, while the remaining seven voted in favor, minutes published Wednesday show. David Miles and Adam Posen both voted in favor of a larger increase of £75 billion, which would have taken the total size of asset purchases to £350 billion. "This leaves the door open for more QE," reckons Victoria Cadman, London-based economist at Investec. "We're looking for another £50 billion in May, and after that we don't see any more as the economy picks up in the second half [of 2012]." In a speech in Scotland yesterday, Bank of England deputy governor Charlie Bean acknowledged that "the current extended period of rock-bottom interest rates has impacted heavily on those holding most of their savings in deposit or short-term savings accounts, who have seen negative real returns." Bean added, however, that while the" side effects" of QE "may be unpalatable...treatment is invariably better than the alternative". Sterling gold prices hit an eleven-week high at £1119 per ounce Wednesday morning, as the Pound fell on the currency markets. The gold price in Yen meantime moved to within 5% of last September's all-time high today, touching ¥140,971 per ounce, as the Dollar hit its highest level against the Japanese currency since last July. Like the Bank of England, the Bank of Japan also expanded its quantitative easing program earlier this month. Growth in Germany's manufacturing sector has slowed this month, according to provisional purchasing managers index data published Wednesday. German manufacturing PMI fell to 50.1 – down from 51.0 last month (a figure above 50 indicates expansion). Across the Eurozone as a whole, provisional manufacturing PMI rose from 48.8 in January to 49.0. Over in China – the world's largest gold bullion consumer in the fourth quarter of last year – flash PMI data compiled by HSBC. Investment banking giant Goldman Sachs repeated its bullish view on gold prices Wednesday. "We expect US real interest rates to remain lower for longer given our US economics team's expectation for US economic growth to remain slow through 2012," said a note from the bank. "Consequently, we expect gold prices to continue to rise through 2012, reaching $1,940 an ounce in 12 months, and we continue to recommend a long gold position." -- London Gold Market Report from Ben Traynor @ BullionVault Tuesday 21 February 2012, 09:00 EST U.S. Dollar Denominated Gold And Silver Bullion Prices Surge, Greece Bailout Deal Finalized U.S. DOLLAR gold bullion prices spiked to $1747 an ounce Tuesday lunchtime in London – a 1.3% gain on last week's close – as US Markets re-opened to the news that European finance leaders have agreed to bail out Greece. Silver bullion also spiked, hitting $33.97 per ounce – 1.9% up on the start of the week. European stock markets by contrast drifted lower in Tuesday morning trading, while the Euro gave back most of the gains it made against the Dollar immediately after the Greek deal was announced. Commodities edged higher, while US Treasuries fell. "Market reaction [to the Greek deal] has been remarkably muted so far," one London gold bullion dealer noted this morning, before US markets opened. Greece's €130 billion second bailout was finally approved in the early hours of Tuesday morning, following a day of discussions among Eurozone finance ministers in Brussels. The European Central Bank will pass on profits from its Greek debt holdings – bought below face value as part of its Securities Markets Programme aimed at supporting troubled sovereign debt markets – to the Greek government as a means of alleviating Greece's debt burden. Private sector creditors meantime will be asked to take bigger losses on their Greek debt holdings than previously agreed. "From my point of view, this is a solid deal for investors, a fair deal for all parties involved," said Charles Dallara, managing director of the Institute of International Finance, which negotiated with the Greek government on behalf of private bondholders. "We've been able to avoid a disorderly default." Private sector losses will be equivalent to "more than 70%" of the net present value of the bonds, according to Jean Lemiere of BNP Paribas, who was involved in the negotiations. The bailout means Greece should now be able to pay €14.5 billion of bonds that mature on March 20. "Does this alleviate the risk of imminent default?" asks Callum Henderson, Singapore-based global head of foreign-exchange research at Standard Chartered. "Yes, but not further out. Further out, the concerns of a default will keep coming back." "The risk," adds a Hong Kong gold bullion dealer, "that we are going to have a sovereign default which leads to the collapse of the Euro still exists, but for that to happen in March, that risk is gone." The official statement released last night by Eurozone finance ministers calls for "further major efforts by the Greek society...to return the economy to a sustainable growth path", as part of an effort to reduce the country's debt-to-GDP ratio to 120.5% by 2020. The statement also invites the European Commission "to significantly strengthen its Task Force for Greece...in order to bolster its capacity to provide and coordinate technical assistance". "Greece will find it difficult to shoulder even the reduced debt in the long-run if it does not implement far- reaching reforms," says Commerzbank chief economist Joerg Kraemer. "The probability will rise in the second half of the year that a frustrated EU stops payments to Greece." Gold imports to India meantime could fall in 2012 for the first time in three years, according to analysts polled by newswire Bloomberg. India imported 969 tonnes of gold bullion in 2011, according to World Gold Council data, in a year that saw gold ETF demand double. The median estimate in Bloomberg's poll was for 900 tonnes to be imported this year. Silver bullion imports however could breach 5000 tonnes – up from 4800 tonnes last year – according to Bombay Bullion Association president Prithviraj Kothari. "Silver demand is expected to rise on firm industrial and investment demand," Kothari told reporters at a conference on Tuesday. Here in London, the daily average volume of gold bullion transferred between parties by clearing members of the London Bullion Market Association was 690.5 tonnes in January – a 1.0% gain on the previous month, and a 15.3% year-on-year gain – LBMA clearing statistics published Monday show. By contrast, the daily average volume of silver bullion transferred fell last month, dropping to 4641 tonnes – the lowest level since March last year. The daily average silver volume fell 24.3% from December – though year-on-year it posted a gain of 24.6%. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Monday 20, February 2012, 08:30 EST London Gold Price Holds Steady, European Central Bank Mulls Writing Down Greek Bond Profits WHOLESALE MARKET gold bullion prices held above $1730 an ounce in Monday morning's London trading – roughly in line with where gold has been for much of February – while European stocks and commodities edged higher amid hopes that policymakers might finally approve Greece's second bailout. US markets are closed for a holiday. Silver bullion prices were also fairly flat this morning around $33.50 per ounce. Earlier on Monday, gold bullion prices jumped $14 an ounce in Asian trading after China's central bank eased its monetary policy stance over the weekend. "The rally lasted only for a very short period of time," says one gold bullion dealer in Hong Kong. "Once we traded [higher], resting [sell] orders took over and stabilized the market. It seems despite various bits of precious-positive news, the market is still in a consolidation phase." The People's Bank of China announced Saturday that it is cutting the reserve requirement ratio – which dictates the amount banks must hold in reserve as a proportion of their assets – by half a percentage point. Large commercial banks will see their RRR fall to 20.5% as a result. The cut "reflects that stimulating economic growth is currently the government's priority" reckons HCBS economist Ma Xiaoping, who adds that it will "help release liquidity" to the tune of around 400 billion Yuan ($63.5 billion). Elsewhere in China, the Shanghai Gold Exchange announced Monday it is cutting its gold trading fees on a number of contracts. It follows last week's announcement by the Shanghai Futures Exchange that it was lowering its margin on gold futures contracts with effect from the start of next month. Singapore meantime will make investment grade gold bullion exempt from a 7% sales tax with effect from October, Reuters reported Monday, citing industry sources. "I think this is really going to change the landscape in Singapore," says one gold dealer. "Asset managers will [be] very excited. The trend in the last three years is that people are moving to physical hard assets from paper." Eurozone finance ministers are meeting in Brussels today to discuss putting the finishing touches on Greece's €130 billion second bailout. "All the elements are in place," France's finance minister Francois Baroin told French radio this morning. Reports suggest there remains uncertainty over how the entire package will be financed. For example, the Financial Times reports that the European Central Bank has been asked to make up a €6 billion shortfall by agreeing to forego some profits on its Greek bond holdings – bought at below-face-value prices on the open market – which would have the effect of easing Greece's debt burden. However, "the gut feeling is that this is going to go through" one Eurozone official tells newswire Reuters. "Everyone feels the pressure this time to deliver... I don't see anybody wanting to be responsible for pulling the plug on the deal at this late stage." "There is [though] scope for events to disappoint," warns Neil MacKinnon, London-based global macro strategist at VTB Capital. Economists at Citigroup say they expect today to bring agreement on a bond swap to reduce Greece's debts, but that final approval of the complete package may be delayed until after the next European leaders' summit on March 1. The International Monetary Fund will only contribute €13 billion to a second Greek bailout – equivalent to 10% – the FT reports, much less than its contribution to previous Eurozone bailouts. Relative to its IMF contribution, Greece already holds the all-time record for the amount borrowed from the IMF, the FT points out. Iran has ceased its oil exports to Britain and France, its oil ministry announced Sunday. The move follows the imposition of sanctions by the European Union. Monday's FT reports that Iran is struggling to find buyers for its oil and may have to resort to cutting its output or storing it in tankers, so-called floating storage. The US Congress Friday approved a bill extending a payroll tax cut and unemployment benefits through to the end of 2012. "Given that it had until February 29 to do this it was not a bad effort from policymakers," note Standard Bank currency analysts Steve Barrow and Jeremy Stevens, who add that while the extension adds $100 billion to the US deficit, not extending the tax cuts and benefits could have costs the economy up to one percentage point in growth this year. In New York meantime the difference between bullish and bearish contracts held by Comex gold futures and options traders – the so-called speculative net long – fell over the week ended last Tuesday for the first time since the week ended January 3. The drop in the spec net long "may mark a consolidation phase in the gold rally in the absence of new price drivers," says the latest note from precious metals consultancy VM Group. The volume of gold bullion held to back shares in the world's largest gold ETF, the SPDR Gold Trust (GLD), rose to its highest level since December 14 last week. By contrast, the iShares Silver Trust (SLV), the world's biggest silver ETF, saw its silver bullion holdings decline slightly. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Friday 17 February 2012, 09:00 EST Gold And Silver Markets End Week Trading Sideways Ahead Of Monday's Eurozone Meeting SPOT MARKET prices for buying gold held just above $1730 an ounce during flat trading this morning in London, as speculation continued over whether a Greek bailout will be agreed next week. Prices for buying silver were also very flat – hovering above $33.50 an ounce – as were those for commodities and stocks ahead of President's Day in the US on Monday. "A quiet session," said one Hong Kong gold dealer this morning. Heading into the weekend, the price of buying gold was up less than half of one percent on the week by Friday lunchtime, with silver also showing very little movement from last Friday's close. German finance minister Wolfgang Schaeuble has reportedly called for Greece to be allowed to default. Chancellor Angela Merkel is firmly against such a development, according to press reports. "Schaeuble doesn't think the Greeks can deliver any more [austerity measures]," an official from Merkel's CDU party tells the Financial Times. Schaeuble has also this week suggested Greece should postpone general elections scheduled for April and install a technocrat government. Eurozone finance ministers are due to meet Monday to discuss Greece's second bailout, with Germany, the Netherlands, Luxembourg and Finland – all rated AAA by ratings agencies – calling for increased permanent supervision of Greece's fiscal affairs. "The one thing we should take away from Lehman Brothers," former US Treasury secretary Henry Paulson said this week, "is you don't want a big systemic institution to fail in a messy way, and you clearly don't want that to happen with a [Euro] member state." "We expect [gold's sideways] trend to continue into the weekend, as participants remain wary of taking on new positions ahead of Monday’s Eurozone meeting," says today's note from Standard Bank commodities strategist Marc Ground. The German parliament is expected to vote on any bailout deal on February 27. If enough members of Merkel's coalition government oppose the measure, she may need to rely on opposition Social Democrat and Green votes. Elsewhere in Germany, Merkel's personal choice for the ceremonial role of German president resigned today amid allegations he misled parliament over a €500,000 loan to buy a house. The European Central Bank meantime is expected to swap its existing Greek bonds for new ones that would not tie it to any collective action clauses to which private investors would be subject. This means the ECB would be protected from taking losses on its holdings – an event that ECB president Mario Draghi has said would amount to monetization of government debt. "In Europe, all bond holders are equal, but the ECB is more equal than others, apparently," says Thomas Costerg, London-based economist at Standard Chartered bank. "This could set a dangerous precedent, and, by creating a de-facto two-tier market, this could discourage investment in other peripheral debt markets." If private sector Greek bond losses are deemed to be involuntary, this could also trigger payments on credit default swaps, which act as a form of debt insurance. "The probability of triggering CDS has increased because the ECB has protected itself," says Padhraic Garvey, head of developed-market debt at Amsterdam-based ING Groep. The United States meantime has no plans to give additional money to the International Monetary Fund, US Treasury undersecretary for international affairs Lael Brainard told the Senate banking Committee Thursday. US consumer price inflation dropped to an annual rate of 2.9% last month, according to figures published Friday – down from 3.0% in December. China's central bank may have been buying gold in the fourth quarter of last year, according to a report in Friday's FT. Elsewhere in China, a huge stockpile of silver bullion has built up in the country, according to investment bank analysis this week. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Wednesday 15 February 2012, 09:00 EST Jump In Euro Gold Price As Euro Falls Against Dollar, German Concerns OVer Greece Continue SPOT MARKET gold prices rose to $1732 per ounce Wednesday lunchtime in London, slightly above where they started the week, as European stock markets dipped amid ongoing uncertainty over Greece's second bailout. Silver prices tested $34 per ounce – 1% above last Friday's close. "Critical support [for gold prices] is in the $1706 area and we would be bearish if this level fails to hold," says the latest technical analysis from bullion bank Scotia Mocatta. "Resistance is last week's high around $1752." Euro gold prices meantime jumped to €42,528 per kilo (€1322 per ounce), as the Euro fell sharply against the Dollar Wednesday lunchtime, after German finance minister Wolfgang Schaeuble expressed concern over whether Greece can be given its second bailout. "I have doubts that all conditions have been fulfilled," Schaeuble told a German radio station. Schaeuble has also revealed that European policymakers are still awaiting a debt sustainability report on Greece, according to The Telegraph. Eurozone finance ministers postponed a meeting scheduled for today, at which it was hoped they might sign off the bailout. Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers, says more work is needed for Greece to meet a requirement to find €325 million of additional deficit cuts. "Furthermore," added Juncker on Tuesday, "I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program." Antonis Samaras, leader of Greece's New Democracy party and widely tipped to be next prime minister, has suggested he could seek to renegotiate any deal if he is elected in April's elections. Before then, Greek government bonds worth €14.5 billion mature on March 20. Greece will not be able to meet these repayments unless European leaders sign off the €130 billion rescue package. A Greek default would have "devastating consequences", according to European Commissioner on Economic and Monetary Affairs Olli Rehn – who yesterday also told Spain's government it needs to be specific about its deficit-cutting measures. The Eurozone however is "better prepared than two years ago" for a Greek default, Schaeuble said at the start of this week. "We are getting closer to default," a senior Eurozone official tells the Financial Times. "Germany, Finland and the Netherlands are losing patience." Greece's economy shrank 7% year-on-year to the fourth quarter of 2011, official government data published Tuesday show. French bank BNP Paribas meantime has written down the net present value of its Greek debt holdings by 75%, according to Q4 2011 results published today. The fall in the Euro reversed gains made during Wednesday's Asian session, following comments from Chinese premier Wen Jiabao. "China is ready to get more deeply involved in participating in solving the European debt issue," Wen told a joint press conference held in Beijing with Herman van Rompuy, president of the European Council. The Eurozone economy as a whole shrank by 0.3% in Q4 on a seasonally adjusted basis, according to figures from Eurostat this morning. "In the long run, the Eurozone debt crisis is still supportive of gold," says Hou Xinqiang, analyst at Jinrui Futures in Shenzhen, China. Here in the UK, the economy is "moving in the right direction", according to Bank of England governor Mervyn King's opening remarks at today's Inflation Report press conference. Britain's unemployment rate meantime remains at 8.4%, according to data released by the Office for National Statistics on Wednesday. "Moving to a world of steady growth, inflation close to our 2% target, and a more normal level of interest rates, will take time," King warned this morning. Responding to suggestions that quantitative easing isn't working – and that the Bank is targeting the wrong assets by buying UK government Gilts – King defended the policy, saying that buying any assets for which there is no demand would be "the definition of a subsidy". The Bank of England expanded its quantitative easing program from £275 to £325 earlier this month. The Bank of Japan meantime, which first adopted QE over a decade ago, announced yesterday that it too was increasing the size of its asset purchase program. Iran's Oil Ministry meantime has denied a report made by Tehran-based English language broadcaster Press TV that it has shut off oil exports to France, Portugal, Italy, Greece, the Netherlands and Spain. The European Union last month joined the US in imposing sanctions on Iran. Over in New York, hedge fund Paulson & Co. cut its stake in world's largest gold ETF the SPDR Gold Trust (ticker GLD) by 15% in Q4 2011, according to SEC filings. In the same period, Soros Fund management boosted its holdings of GLD shares by 77%. The overall volume of gold bullion held to back GLD shares rose nearly 2% in Q4. The Shanghai Futures Exchange has announced it will lower its gold trading margins with effect from March 1. "The exchange's move is aimed at boosting trading at a time when volatility seems to have been tamed," says Zuo Xichao at research firm Beijing Antaike Information Development. "Lower margin requirements will make these investments easier and more attractive because trading now requires less money to be locked up." Daily volatility in gold prices has halved since hitting its highest level in three years last September. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Tuesday 14 February 2012, 08:30 EST "Sideways Trade" sees Gold "Supported by Phys. Demand", Debt Warning "Reality Check" for Britain while Obama Calls for Increased US Spending THE WHOLESALE market gold price eased to $1713 per ounce Tuesday lunchtime – 1.1% down on the previous day's high – while stock and commodity markets were broadly flat despite several European countries having their sovereign ratings or outlooks lowered last night. The silver price dipped to $33.37 per ounce – a 0.8% fall on last week's close. Following falls Tuesday's Asian session, the gold price rallied in early London trading, at one point touching $1721 per ounce. "Physical demand continues to place a floor on prices," reckons Standard Bank commodities strategist Marc Ground, who expects the gold price "to continue tracking Euro/Dollar movements today". "As gold has been trading sideways since the correction on February 3," adds the latest technical analysis from bullion bank Scotia Mocatta, "we are neutral until we see a downside break of the low $1700s". Ratings agency Moody's downgraded Italy and Spain on Monday. Malta, Slovakia and Slovenia were also downgraded, while Austria, France and the UK all had the outlook on their Aaa ratings changed to 'negative'. "[Europe's] policy makers have made steps forward but we do not think they have done enough to reassure the market that we are on a stable path," says Alistair Wilson, Moody's chief credit officer for Europe. Fellow ratings agency Standard & Poor's last month stripped both Austria and France of AAA status, while affirming the same rating for the UK. Moody's is the first of the three major ratings agencies to announce a negative outlook on the UK's rating, saying yesterday that it expects Britain's debt-to-GDP ratio to hit 95% over the next two or three years. "For me it was a reality check," British chancellor George Osborne said on BBC radio Tuesday morning. "It's yet another reminder that Britain doesn't have an easy way out of its economic problems...people have a choice about where to put their money. If they don't see Britain dealing with its problems, they will take their money elsewhere." Also in the UK, annual consumer price inflation fell to 3.6% last month – down from 4.2% in December – though this remains above the bank of England's official target of 2.0%. Forced to write his 14th open letter since 2007 explaining why UK inflation has breached the official upper limit of 3.0% per year, Bank of England governor Mervyn King today blamed "increases in VAT [sales tax], import prices and energy prices that were largely unexpected." Those factors are now "waning", says King, repeating his forecast – first made in March 2009 – that "inflation will fall back to around target" in the next 12 months. Inflation on the UK Consumer Price Index has averaged 3.8% over the last three years. The gold price in Sterling has risen 70% over that time. Last week the Bank of England extended its money-creation program, first launched three years ago, from £275 billion to £325bn, using the money to buy more than 27% of all UK government debt currently in issue. Elsewhere in Europe, industrial production in the 17-nation Eurozone as a whole fell 2.0% in the year to December, figures published Tuesday by European Union statistics body Eurostat show. Across the 27-member European Union the fall was 0.9%. Greek leaders meantime were today looking to identify €325 million in budget cuts ahead of tomorrow's Eurozone finance ministers meeting, where they hope European leaders will sign off on Greece's €130 billion second bailout. Over in Washington, US president Barack Obama called for additional government spending and higher taxes on the wealthy as part of his 2013 budget proposals to Congress on Monday. The president called for $800 billion for job creation and investment in infrastructure, according to news agency Reuters, which says projected deficits would add over $7 trillion to the US national debt over the next decade. In addition, Obama is seeking a top individual income tax rate of 39.6% next year, according to newswire Bloomberg. The world's first Yuan-denominated gold exchange traded fund launched in Hong Kong Tuesday. The Hang Seng RMB gold ETF – which is designed to track the London Fix price – made a "weak" debut, according to Reuters. Bloomberg reports that the equivalent of 3.18 kilograms of gold were traded – around $176,000 worth based on the gold price at this morning's London Fix. "It will take time for investors to understand the product before they jump in," says Hou Xinqiang, gold analyst at Jinrui Futures in China. "Besides, Hong Kong has a lot of gold investment products and the market is already very savvy, so investors will probably take some time to assess its selling point." Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Monday 13, February 2012, 08:30 EST Dollar Weakness "Creating Gold Demand" after Greek Deal, Time for American Austerity "Is Not Now" says White House SPOT MARKET gold prices touched $1733 per ounce Monday morning – 0.5% up on last week's close – as stock markets, commodities and the Euro all rallied following Greece's vote in favor of new austerity measures. Silver prices meantime hovered around $33.90 per ounce – 0.8% up on the end of last week – while government bond prices dipped and the Dollar fell on the currency markets. "The weakness in the Dollar...creates a bit of demand for gold," reckons Bernard Sin, head of currency and metal dealing at Swiss precious metals refiner MKS. By Monday lunchtime, Euro-denominated gold prices were roughly where they ended last week, at around €42,000 per kilo (€1306 per ounce). Greek lawmakers last night approved a fresh austerity package, including public sector layoffs, minimum wage reduction and pension cuts. A reported 80,000 people took to the streets in protest, while press reports said up to 30 buildings were firebombed. Antonis Samaras, leader of the New Democracy party and widely tipped as Greece's next prime minister, expelled 21 members from his party for voting against the measures. Former prime minister George Papandreou, leader of the socialist Pasok party, also expelled members who did not support the measures. Eurozone finance ministers are due to meet on Wednesday to review the new agreement, and potentially sign off Greece's €130 billion second bailout. This in turn should pave the way for a deal with Greece's private creditors to reduce the country's debt burden, as well as stave off a default on March 20 when €14.5 billion of 3-Year Greek bonds mature. "The government may yet find that approving the new measures...proves to be far less of a challenge than implementing them in the months ahead," reckons one gold bullion dealer here in London. "We are still looking for more measures out of Europe before we see a sustainable risk rally," adds Ong Yi Ling at Phillip Futures in Singapore, who expects gold prices to hit resistance at $1760 per ounce. "That will be the first resistance and the second one is at about the $1800 level. For gold to break the $1800 level, we need more measures, I would say." Here in the UK, the latest Bank of England figures relating to Project Merlin – the agreement between the UK government and British banks aimed at promoting lending to business – show that banks lent £214.9 billion overall to business in 2011, against a target of £190 billion. However, the target for smaller businesses was missed, with £74.9 billion lent versus a target of £76 billion. The final quarter of last year saw a 3% drop in net lending. "The Merlin targets have failed," says Andrew Cave, head of external affairs at the Federation of Small Businesses. "Talking to our members, 30% of them say they missed a growth opportunity because they weren't able to access finance at the right times, so there is still a problem." "The reality," adds Lee Hopley, chief economist at manufacturers' federation EEF, "is that small and medium enterprises continue to be frustrated by the cost and terms and conditions around lending, with some opting out of using external finance altogether. This cannot be good for growth." China's government has ordered the country's banks to begin rolling over its loans to local governments, according to the Financial Times. When the global financial crisis broke in 2007-8, the state launched a massive stimulus program. Local authorities in China now have debts worth an estimated $1.7 trillion the FT says. US president Barack Obama will today call for higher taxes on millionaires and billions of Dollars' worth of infrastructure projects to create jobs as part of his 2013 budget proposals, news agency Reuters reports. "I think there is pretty broad agreement that the time for austerity is not today," White House chief of staff Jack Lew said Sunday. Obama is expected to repeat his call made during his State of the Union address for the introduction of the so-called Buffett Rule, which would see millionaires pay a tax rate of at least 30%. The net difference between bullish and bearish gold futures and options contracts held by traders on New York's Comex – the so-called speculative net long – went up for the fifth week in a row over the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission. The spec net long and open interest both hit their highest levels since the week ended 15 November. "It is likely that net spec length may consolidate or even decline in the week to 14 February as futures open interest in the period 8-10 February fell in parallel with the gold price," reckons Carl Firman at precious metals consultancy VM Group. "Options open interest in this period also shows a rise in puts relative to calls, suggesting some doubt may be creeping into the sustainability of the price rally." The volume of gold bullion held to back shares in world's largest gold ETF the SPDR Gold Trust (GLD) meantime is at its highest level since 20 December, having risen 0.1% over the course of last week. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Friday 10 February 2012, 09:00 EST Gold Down on Week Following Rejection of "Weak" Greek Reforms, Draghi Denies "Stigma" of ECB Lending U.S. DOLLAR gold prices were on course for a second weekly fall Friday lunchtime in London, heading down towards $1700 an ounce following European ministers' rejection yesterday of Greece's latest austerity reforms. Silver prices also traded lower, hitting $33.27 per ounce – 1.4% down on last week's close. Stocks, commodities and the Euro all fell, while the Dollar gained along with prices for major nation government bonds. "Gains in the US Dollar and consistent disappointment from the European Union regarding the Greece debt deal are curbing any gains in gold," reckons Pradeep Unni, senior analyst at commodity brokerage Richcomm Global Services in Dubai. "People are just throwing in the towel because we didn't see a rally," adds Afshin Nabavi, senior vice president at Swiss precious metals refiner MKS. Spot market gold prices were down 1.2% for the week Friday lunchtime, hitting $1706 per ounce, their lowest level since Jan.25, the day the US Federal Reserve confirmed its policymakers expect near-zero interest rates until at least late 2014. Eurozone finance ministers yesterday dismissed a reported €3.3 billion package of spending cuts presented to them by Greece's leaders, who have now been asked to find an additional €325 million in savings. "No disbursement before implementation," said Luxembourg prime minister Jean-Claude Juncker, who chairs the Eurogroup of single currency finance ministers. "We can't live with this system where promises are repeated and repeated and repeated and implementation measures are sometimes too weak." The Eurogroup also suggested that there could be greater external involvement in the Greek economy, with the aim of improving tax collection and speeding up privatization of state assets. German finance minister Wolfgang Schaeuble meantime said the ministers "will certainly not discuss a top-up" of Greece's €130 billion second bailout. "If we see the salvation and future of the country in the Euro area," said Greek finance minister Evangelos Venizelos, "[then] we have to do whatever we have to do to get the program approved." "Venizelos, like some officials before him, is playing the 'in or out' card," says this morning's note from Standard Bank currency analysts Steve Barrow and Jeremy Stevens. "We suspect [the Eurogroup's conditions] will be delivered, but not without some acrimony." Thousands took to the streets in Athens Friday as unions called a two-day protest strike, the second this week following Tuesday's 24 hour action. "With Greek elections planned for April 2012, it may be the case that the politicians who sign off on agreements to receive Euroland aid next week may be replaced quite swiftly by less amenable types," notes one gold bullion dealer here in London. If the second bailout is not approved, Greece will be unable to pay over €14 billion of debt that matures on March 20. "[Greek politicians] must get this deal agreed really within the next few days to enable them sufficient time and have the new bailout money disbursed before that bond is due," says Tony Stringer, managing director of global sovereigns at ratings agency Fitch. "If they don't manage to achieve that, then it could be in the realm of a disorderly default." European Central Bank president Mario Draghi meantime denied a suggestion put to him at Thursday's press conference that the ECB's three year longer term refinancing operation – at which European banks can borrow from the central bank at low rates – represents "hidden government financing" that some banks would prefer not to access. Deutsche Bank chief executive Josef Ackermann said last week that: "the fact that we have never taken any money from the government has made us, from a reputation point of view, so attractive with so many clients in the world that we would be very reluctant to give that up." "There is no stigma whatsoever attached to these facilities," said Draghi yesterday, adding that some bankers' statements were "statements of virility" and that many banks whose chiefs have made such comments have actually accessed the LTRO or other ECB credit facilities. The ECB also announced Thursday that it is changing the rules on collateral banks can post against their ECB borrowing to widen eligibility, although the Governing Council decision was not unanimous. Regulated commodity futures exchange CME has lowered its margin on gold futures trades, along with margins on silver and copper. "The announcement...has failed to inspire much interest [in gold]" says Marc Ground, commodities strategist at Standard Bank. CME raised its margin on gold trading in both August and September last year, "contributing to the sharp fall" in gold prices seen over those weeks, according to a note from Commerzbank this morning. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Wednesday 8 February 2012, 08:30 EST Gold Maintains Stalwart Commodity Status, Formal Financial Reforms Still Elude Greek Leaders WHOLESALE MARKET prices for gold bullion held steady just below $1750 per ounce Wednesday morning in London – a 2.2% gain on yesterday's low – after rallying Tuesday following comments from US Federal Reserve chairman Ben Bernanke. Silver bullion eased slightly this morning after hitting $34.55 per ounce – its highest level since November 16. "Gold faces significant resistance at $1766, but above that look for $1778-1798," says one gold bullion dealer here in London. The S&P 500 hit its highest level in over six months Tuesday at 1349.24 – 25% up on last October's low. Gold bullion meantime is up 9.6% over the same period. "I'm very bullish on the [stock] market," says Laurence D. Fink, chief executive at world's largest money manager BlackRock. "I don't have a view that the world is going to fall apart, so you need to take on more risk. You need to overcome all this noise and there are great values in equities." Despite official figures showing that the unemployment rate fell to 8.3% last month – down from 8.5% in December – the US still has "a long way to go before the labor market can be said to be operating normally," Federal Reserve chairman Ben Bernanke told the Senate Budget Committee Tuesday. "Bernanke did not give any indication that the Friday job market report is changing the fundamental way [Fed policymakers] are viewing the economy," says Dean Maki, chief US economist at Barclays Capital. "It is going to take a number of favorable reports before their view on monetary policy shifts." The US Dollar Index, which measures the US Dollar against a basket of other major currencies, hit a 2-month low Wednesday morning. Elsewhere in Washington, talks on extending payroll tax cuts and unemployment benefits stalled in the Senate Tuesday. Around 160 million people will see their taxes rise if the cuts, which expire March 1, are not extended. Three million meantime could lose unemployment benefits from the same date if they too expire. There was still no agreement Wednesday lunchtime among Greek leaders regarding austerity reforms required as part of Greece's €130 billion second bailout. A meeting of senior Greek politicians was postponed for the second day running Tuesday, with some reports citing missing paperwork as the cause of the delay. Leaders have agreed in principle to spending cuts equivalent to 1.5% of GDP, Greek prime minister Lucas Papdemos has said, but a formal reform deal remains elusive. "[Even] if Greece were to agree on everything right away," says Societe Generale commodity strategist Jeremy Friesen, "I don't think it would solve everything because they will still have to implement the measures...there are plenty of land mines left." "No to medieval labor conditions!" chanted protesters outside the Greek parliament during Tuesday's 24 hour strike. "It is in our interest for Greece to remain [in the single currency]," Dutch prime minister Mark Rutte said Tuesday. "But if that does no work out, then [the other Euro members] are stronger now than a year-and-a-half ago." Rutte's comments echo those of his compatriot Neelie Kroes, a European Commissioner, who told a Dutch newspaper this week that it is "simply not true" that the "entire edifice" of the single currency would collapse were Greece to leave. German chancellor Angela Merkel however warned yesterday that a Greek exit would have "unforeseeable consequences". "I will have no part in forcing Greece out of the Euro," she told some young people in a Berlin museum. The European Central Bank meantime has agreed to exchange its Greek bonds, bought on the secondary market as part of the ongoing Securities Market Program, at below face value, according to a Wall Street Journal report. The plan would reportedly involve the ECB swapping its Greek debt for bonds issued by the Eurozone's current bailout fund, the European Financial Stability Facility. The EFSF, whose debt was downgraded by Standard & Poor's last month from AAA to AA+, would then redeem the bonds with Greece at less than par value – though the ECB, which itself paid less than par for the bonds, says it does not intend to take a loss. The ECB Governing Council is due to deliver its latest policy decision tomorrow. Here in London, the Bank of England, which also announces its latest monetary policy decisions tomorrow, is widely expected to press ahead with further quantitative easing despite recent positive economic data. "On a risk/reward basis, I still think the Bank will do more QE," says Alan Clarke, UK economist at Scotiabank. "The market's disappointment at the BoE not delivering would be too unwelcome. But if we continue to get reasonable growth numbers, then February's QE may be the last." The Bank of England's Monetary Policy Committee voted to increase the size of its QE program from £200 billion to £275 billion last October. "We believe the debate on the MPC will now be between [additional QE of] £25 billion and £50 billion this month, with our official call being for £50 billion," reckons George Buckley, chief UK economist at Deutsche Bank, who also feels "this may be the last round of asset buying" should economic data continue to be strong. The world's second-largest gold bullion consumer China is set to see a 13% rise in the official annual minimum wage as part of a government jobs plan published Wednesday. The plan is part of China's 12th Five Year Plan, which runs from 2010 to 2015. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Tuesday 7 February 2012, 07:45 EST Gold And Silver Price Head Lower In London As Greece Taunts Default Precipice U.S. DOLLAR gold prices touched a 2-week low of $1711 an ounce Tuesday lunchtime in London, with stocks, industrial commodities and the Euro also falling amid uncertainty over whether Greece is approaching default. Silver prices dropped to $33.20 per ounce – down 1.6% on the start of the week. "The $33.00 level [is proving] to be strong support," says the latest technical analysis note from bullion bank Scotia Mocatta. Gold prices Tuesday lunchtime remained more than 3% above where they were on January 25, the day the US Federal Reserve revealed its policymakers expect near-zero interest rates to persist until at least the end of 2014. The Fed announcement "put an end to the correction in gold," reckons Mark Arbeter, chief technical strategist at S&P Capital IQ. France and Germany have suggested that part of the €130 billion second bailout for Greece be set aside to pay Greece's creditors, with Greek leaders yet to agree to austerity reforms required by the so-called troika of international lenders, the European Central Bank, European Union and International Monetary Fund. "We want Greece to stay in the Euro," German chancellor Angela Merkel told a press conference in Paris on Monday. "But I also say there can be no new Greek program if agreement is not reached with the troika...all those who bear responsibility in Greece must know we will not deviate from this position." The lack of agreement among Greek leaders over how to reduce public spending has led to the postponement of a Eurozone finance ministers meeting scheduled for this week, at which the new bailout was to be finalized, the Financial Times reports. "I honestly can't understand how additional days will help," Merkel said yesterday. "Time is of the essence. A lot is at stake for the entire Eurozone." European Commission vice president Neelie Kroes however has played down the implications of Greece leaving the Euro. "[Politicians] always said if a country is let go or asks to get out, then the whole edifice will collapse," she told Dutch newspaper Volkskrant. "But that is simply not true." Citi economists Willem Buiter and Ebrahim Rahbari see the likelihood of Greece exiting the Euro – which they term 'Grexit' – as "50% over the next 18 months". "The implications of Grexit for the rest of the Euro Area and the world would be negative, but moderate, as exit fear contagion would likely be contained by policy action, notably from the ECB." "Greece is sitting right on the edge of default," adds Standard Bank currency analysts Steve Barrow, "with Portugal possibly not too far behind." "It is still possible to avoid a disorderly default," insists one unnamed senior European official quoted by the FT. "[However] the delays have been damaging [and] have dangerously increased the degree of uncertainty, and they are entirely due to the Greek side." "The problem today," countered Greek socialist Pasok party spokesman Panos Beglitis on Monday, "is the depressing imposition of Germany's strategy on the Eurozone. Nobody is listening to us. We are lonely." Greek trade unions have called a 24 hour strike today. There were disturbances in Athens, where riot police fired tear gas at protesters. "My timeline says a German flag has been set alight outside the Greek parliament," reports Greek Dow Jones journalist Matina Stevis on her Twitter account. "As ever, the ongoing uncertainty would keep gold prices underpinned," said a note from VTB Capital this morning. Here in London, FTSE-listed Glencore, the world's largest stock market-listed commodities trader announced today it has completed its merger with mining giant Xstrata in a $90 billion deal. China's gold imports from Hong Kong meantime rose 260% in 2011, according to new data from the Hong Kong Census & Statistics Department on Tuesday. Rising to a record 428 tonnes, last year's total was greater than China's domestic gold mining production – itself a new record, and the world's largest national output. Today's news most likely puts total Chinese gold bullion demand for 2011 at well over 800 tonnes. World number one consumer India imported some 878 tonnes in 2011, according to the Bombay Bullion Association. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Monday 6, February 2012, 09:00 EST London Gold Price Falls As Greece Banking Problems Continue, Comex's Gold Futures And Options Contracts Spread Likely Headed Higher SPOT MARKET gold prices fell further Monday morning in London, reaching $1713 an ounce by lunchtime – a 2.8% drop from last week's high – as stock and commodity markets also ticked lower, while US Treasury bond prices gained. Silver prices dropped to $33.09 per ounce – 3.9% down on the high from last week – as uncertainty grew over the long-running Greek debt issue. Gold prices began their downward move on Friday following the publication of better-than-expected US nonfarm jobs data. Stock markets by contrast rallied immediately following the release. "[The fall] may serve as a warning of an interim top," reckons Russell Browne, technical analyst at bullion bank Scotia Mocatta, adding "there is key support at the $1550 level from the long-term uptrend." On the currency markets, the Euro drifted lower Monday morning against the Dollar, which saw gains against a basket of major currencies. "It's been a bit of a rollercoaster, the relationship between gold and the Euro," reckons Royal Bank of Scotland metals analyst Nikos Kavalis. "One day it's positive, one day it's negative. But this morning, Dollar strength, or Euro weakness, is clearly affecting gold." "Gold is not seeing the big declines we saw in November and December," adds Edel Tully, precious metals strategist at UBS. "Gold has become more of the safe haven asset...although gold is not in the all-out bullish camp yet, investors have been adopting a more friendly approach, but they are not going all bets in on gold—yet." Greece's prime minister Lucas Papademos has said that Greek political leaders have agreed on measures to reduce public spending by the equivalent of 1.5% of GDP. However, there is still no formal agreement to the terms set by the so-called 'troika' of international creditors – the European Central Bank, the European Union and the International Monetary Fund – as part of Greece's €130 billion second bailout. "If Greece substantially deviates from the reform course through its own fault, then Athens can no longer expect that others will show solidarity in the form of financial contributions," Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers, said in an interview with German newspaper Der Spiegel over the weekend. "If we were to conclude that everything is going wrong in Greece, then there won't be any new aid program, which would mean that Greece will have to declare bankruptcy in March." Greece has over €14 billion of maturing bond to pay on March 20. "It will be very bad if there is no white smoke from Athens today," one Eurozone government source tells newswire Reuters. "We have already missed deadlines...we need a decision now to put the mechanism of rescheduling in place." "This week is crunch time for Greece," agrees Witold Bahrke, senior strategist at PFA pension in Copenhagen, which oversees $45 billion in assets. "We can no longer completely exclude extreme scenarios such as a disorderly default or, a bit further down the line, an exit from the Euro area." Greece is also continuing negotiations with private sector creditors to determine by how much the Greek debt they hold will be written down. In his Der Spiegel interview, Juncker denied that Portugal will receive the same treatment as Greece. "There will be no debt haircut for Portugal," he said. "We have always said that Greece was a special case. There, it was necessary to have a certain participation of the private sector. But, that is definitely out of the question for other countries." Elsewhere in Europe, the European Banking Authority, which oversees regulation of the continent's banking sector, is unconvinced by banks' proposed efforts to boost the amount of capital they hold as a buffer against financial market shocks, the Financial Times reports. The EBA said in December that 30 European banks needed to boost their capital if they are to reach the regulator's 9% target for the ratio of Tier 1 core capital to assets. Those banks submitted their plans to the EBA last month. "According to one person close to the process, as much as half of the measures outlined in those plans do not look credible," the FT reports. Banks will be able to borrow more money when the ECB holds its second 3-year longer term refinancing operation later this month. December's LTRO saw European banks borrow nearly €500 billion in total. Many observers expect banks to borrow at least twice as much as this month's operation. The difference between bullish and bearish gold futures and options contracts held by traders on New York's Comex – the so-called speculative net long – rose for the fourth week running in the week ended last Tuesday gaining 21%, according to the latest data from the Commodity Futures Trading Commission. "This has been the most aggressive display of confidence in gold we’ve seen in some time," says Marc Ground, commodities strategist at Standard Bank. "However, given that these moves were largely as a result of the Fed's dovish announcement, and that before these moves the futures market remained cautious of gold's prospects, we still would not be surprised to see a pull-back." Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Friday 3 February 2012, 09:30 EST Gold Price Adjusts As U.S. Labor Force Gets Smoked, Record 1.2 MILLION Workers Drop Out Of Labor Force In One Month SPOT MARKET gold prices slipped back below $1750 an ounce while stock markets rallied strongly following the release of better-than-expected US jobs figures on Friday. The Bureau of Labor Statistics nonfarm payrolls report, published on Friday, shows that the US added a net 243,000 nonagricultural private sector jobs last month. In addition, both November and December's nonfarm figures were revised upwards. The unemployment rate fell to 8.3%, down from 8.5% the previous month. Silver prices also fell following the nonfarm announcement, while the US Dollar saw an immediate gain against major currencies such as the Pound, Euro and Yen. Earlier on Friday Dollar gold prices hit their highest level in 11 weeks at $1762 per ounce, a level not seen since mid-November, following US Federal Reserve chairman Ben Bernanke's appearance before Congress on Thursday. "We are not seeking higher inflation," Bernanke told the House Budget Committee, in response to comments from Republican representative Paul Ryan, who said he was "greatly concerned to hear the Fed recently announce that it would be willing to accept higher-than-desired inflation in order to focus on the [employment] side of its dual mandate." "We do not want higher inflation and we're not tolerating higher inflation," responded Bernanke, although elsewhere in his testimony he warned that "risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home." Fed policymakers revealed last week that a majority of them expects interest rates to remain near zero for at least the next three years. Bernanke added yesterday that the speed and aggressiveness of any future rate rises "may depend to some extent on the balance" between maintaining employment and pursuing price stability. "These comments lent support to gold," reckons James Steel, chief commodities analyst at HSBC in New York, noting that the Fed could opt for additional quantitative easing if progress towards full employment was inadequate. US inflation as measured by the consumer prices index fell to 3.0% in December, down from 3.4% the previous month, but up from 1.1% 12 months earlier. "As every day goes by, I see deflation in the things you own and inflation in the things you need," said hedge-fund partner Kyle Bass at a meeting of the University of Texas's $25.7 billion Investment Management Co. (Utimco) in Austin, Texas on Thursday. "I'm against selling any of the gold," Bass said, referring to the $1.2bn which Utimco now owns in physical gold bars after switching out of futures contracts then worth $992m in April 2011. Over in Europe, Greece's finance minister Evangelos Venizelos said Thursday that the European Central Bank would need to take losses on its Greek government debt holdings if Greece is to achieve the goal of reducing its debt-to-GDP ratio to 120% by 2020. Greece is yet to agree a deal with its private creditors over the size of losses they will take. The lack of a deal throws into doubt Greece's €130 billion second bailout, without which it will be unable to pay out on maturing bonds next month. "Greece needs a new program, there's no question about that, but Greece must create the conditions for it," German finance minister Wolfgang Schaeuble said Thursday. "We can't pay into a bottomless pit." "Precious metals are enjoying some support from safe-haven demand as issues in the Eurozone once again weigh on investors' minds," says Marc Ground, commodities strategist at Standard Bank, who sees resistance for gold prices at $1768 per ounce. Gold jewelers in India meantime the government to raise the duty drawback – the amount of duty exporters can claim back from the Department of Revenue – applicable to the gems and jewelry sector. The request from the Federation of Indian Exports Organisations follows the government's decision last month to increase duty on gold bullion imports and switch to an ad valorem tax, which takes the form of a percentage of value rather than a discrete amount by weight. Heading into the weekend, Dollar gold prices looked set to record their fifth straight weekly gain. The gold price in Euros meantime was up 1.8% for the week by Friday lunchtime, and closing in on the four-month high touched earlier on Friday at €43,098 per kilo (€1340 an ounce). Like those for gold, Dollar silver prices also hit their highest levels since November Friday morning, at $34.44 per ounce. Based on London Fix prices, gold is up nearly 15% since the end of 2011, while silver is up by more than 19%. Despite silver's rise, however, the world's largest silver ETF, the iShares Silver Trust (ticker: SLV) has seen its holdings of bullion rise just 0.2% since the start of 2012. By contrast, the amount of gold held to back shares in the SPDR Gold Trust (ticker: GLD), the world's largest gold ETF has grown 1.8% over the same period, rising to its highest level since December 20 yesterday at 1277 tonnes. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor BullionVault Wednesday 1 February 2012, 08:30 EST Gold, Stocks and the Euro All Gain in "Risk Asset Recovery" as Positive Manufacturing Data "Confirms China's Soft Landing" THE U.S. DOLLAR cost of buying gold climbed to $1750 an ounce Wednesday morning London time – gold's highest level since early December – while commodity prices also ticked higher and stock markets surged following the release of better-than-expected manufacturing data from several major economies. Prices for buying silver rallied to $34.01 – though they remained below yesterday's high. US Treasury bond prices fell meantime, while the Euro rallied 1.3% against the Dollar. "Buyers have returned to the Euro, which is helping the situation in gold," says Ole Hansen, senior manager at Saxo Bank. "[Gold] had a bit of lackluster profit-taking yesterday but didn't break anything important on the downside, which helped confirm that being long is back in vogue." "I think that going forward, gold is still going to be looking at the US and the Euro zone for direction," reckons Phillip Futures analyst Ong Yi Ling in Singapore. The wholesale market price of buying gold in Euros meantime rose to its highest level since September – hitting €42,864 per kilo (€1333 per ounce) – before dropping ahead of US open. Based on month-end PM London Fix prices, January saw gold's biggest calendar month gain in Dollar terms since September 1999. The Dollars-per-ounce price of buying gold was fixed at $1744 yesterday – 13.9% up on the last PM Fix of 2011. January also marked gold's best start to a year since 1980, Amanda Cooper at Reuters reports. Stock markets meantime recorded their best January since 1994, according to Bloomberg, which cites a 5.8% rise for the MSCI All-Country World Index if dividends are included. "Three things have been behind the recovery in risk assets," says Mike Ryan, chief investment strategist at UBS Wealth Management Americas in New York. "Progress on a fiscal compact in Europe, better-than- expected economic data and more accommodative central-bank policies." Stock markets gained strongly Wednesday morning too – with the FTSE 100 in London up 1.4% and Germany's DAX up 2.4% by lunchtime – following news of worldwide manufacturing growth. China's manufacturing sector grew in January, according to the official purchasing managers index release, which rose to 50.5 from 50.3 last month (a figure above 50 indicates expansion). "Today's data further confirmed a soft-landing story for China," reckons Ken Peng, economist at BNP Paribas in Beijing. "However, consumer demand may weaken after holiday effects disappear." "New export orders declined," points out Wei Yao, China economist at Societe Generale. "Together with a depressed level of backlog orders...the boost in total orders looks temporary, and suggests that manufacturers are not very optimistic about the near-term outlook. Given today’s report, we think year on year export and import growth will prove to be barely positive in January." China's PMI figure "was expansionary, but no so expansionary that we anticipate [monetary] tightening," says one gold dealer here in London. "There will be a power transition in Beijing this year," adds a dealer in Hong Kong. "I expect maintaining stability at all cost is what this government is going to do." Britain's manufacturing sector also expanded in January, with the PMI coming in at 52.1 – having been below 50 the previous month. Similarly, German manufacturing resumed growth last month, according to its January PMI, which was reported today as 51.0. Eurozone manufacturing as a whole, however, continued to shrink, albeit at a slower rate, with the PMI rising from 46.9 in December to 48.8 last month. Similar manufacturing data for the US are released later on Wednesday. The latest ADP Employment Report meantime shows the US added 170,000 private sector jobs in January – down from around 300,000 the previous month. The official nonfarm payrolls data are due to be released by the US Bureau of Labor Statistics on Friday. Greece's private sector creditors may be offered a 'sweetener' in the form of a bond whose coupon is tied to future economic growth, Bloomberg reports. Negotiations – which Greek finance minister Evangelos Venizelos said yesterday are "one step" from success – stalled last week after parties could not agree on the size of the coupon on new bonds for which existing ones would be swapped. The government in India – the world's largest source of demand for buying gold– announced Wednesday it is raising the base import price of gold by 5.7% to $556 per 10 grams. Silver's base import price will rise 12% to $1067 per kilo. The base import price is the price used to calculate the import duty. The move follows last month's switch from discrete to ad valorem taxation, a move which also saw the effective duty on gold almost doubled. The higher import duties have had a "definite impact" on demand for buying gold in India, according to Harshad Ajmera, proprietor of JJ Gold House in Kolkata. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Tuesday 31 January 2012, 09:00 EST Gold Set for Biggest Monthly Gain of C21st, But Ends January with "Lackluster" Physical Interest in Asia U.S. DOLLAR gold bullion prices looked set to record their largest calendar month gain this century by Tuesday lunchtime in London. Gold prices hit $1745 per ounce – just less than 14% up on the Dollar gold bullion price set at the last London Fix of 2011. By this measure, January 2012 looked set to record the fourth-largest calendar month gain in the last three decades, and the biggest since September 1999, the month that saw the signing of the Central Bank Gold Agreement, which limited the sales of gold bullion by signatory central banks. Stocks and commodities also gained Tuesday, while government bond prices dipped. "In overnight trade in Asia, we continued to see lackluster physical interest," says Marc Ground, commodities strategist at Standard Bank. "[There was] even some scrap gold and silver coming to market from Japanese recyclers...nevertheless, prices held steady." Physical volumes on the Shanghai Gold Exchange Tuesday were down 28% on the previous day. The first day's trading after Lunar New Year saw "strong physical demand" on Monday, according to one gold bullion dealer in Hong Kong. Silver bullion prices meantime hovered around $33.80 per ounce – 21.2% up on the start of January. Industrial manufacturers meantime are set to use over 15,000 tonnes of silver in 2012 – 2.5% more than last year – according to estimates by Barclays Capital. Morgan Stanley meantime reckons investors may invest in 2000 tonnes of silver bullion via exchange traded vehicles – following net selling by such investors of 1300 tonnes last year. "Silver got hammered [following last April's peak]," says Dan Smith, head of metals research at Standard Chartered. "Now we're into a phase where it will do quite well...Appeal comes from its widespread use in both industry and investment. I think it's relatively cheap." "The short-term investment argument is not entirely convincing," counters David Jollie, strategic analyst at Mitsui Precious Metals in London, citing "weak industrial demand" in places like China. Chinese silver imports in December were 36% down on their average for the last two years, customs data cited by newswire Bloomberg show. Here in the UK, seasonally adjusted M4, the broadest money supply measure, fell 1.4% in December – its largest one month drop since the Bank of England began recording the data in 1982. The year-on-year fall was 2.5%. Net consumer credit in November meantime fell by £377 million – the first net drop since last January and the biggest monthly fall since the data series began in 1993. "There is clearly a risk that credit constraints may hinder the reallocation of resources required to rebalance the economy," Bank of England governor Mervyn King said in a speech last week, adding that "there is scope for interest rates to remain low, and, if necessary, for further asset purchases [to facilitate quantitative easing]." Eurozone unemployment meantime hit a record high last month at 16.5 million people – with the unemployment rate at 10.4% – according to official figures published Tuesday by Eurostat. "In many cases you find firms continuing to delay investment projects," notes Citigroup economist Guillaume Menuet. "For those that are still making profits, hiring is being frozen, and for those which are under pressure to hit results or losing money, job losses are becoming the only solution that they have." Elsewhere in Europe, banks are preparing to borrow at least €1 trillion when the European Central Bank holds its 3-Year longer term refinancing operation next month – more than twice the amount borrowed at December's 3-Year LTRO. Greece meantime is hoping to conclude a deal with its private sector creditors by the end of the week, Greek prime minister Lucas Papademos said Tuesday. There remained however no agreement among European leaders over what to do about the deterioration is Greece's fiscal position. "Greece's debt sustainability is especially bad," German chancellor Angela Merkel said Monday. "You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap." At yesterday's summit leaders agreed to accelerate the implementation of the €500 billion European Stability Mechanism, the Eurozone's permanent bailout fund. There was also endorsement of proposed new deficit rules – although a German suggestion that the EU appoint a budget commissioner to oversee Greece's finance appears not to be receiving wider support. "Surveillance of Greece's progress is normal," French president Nicolas Sarkozy said, "but there was never any question of putting Greece under guardianship." Over in the US, the Commodity Futures Trading Commission, which regulates gold futures and options trading on the New York Comex, has said it is considering new rules aimed at firms using automated and high-frequency trading systems as part of its efforts to implement the Dodd-Frank legislation on financial services. Venezuela has completed the repatriation of 160 tonnes of gold bullion – around three quarters of its total reserves that were held in US, European and Canadian banks – newswire Dow Jones reports. "Venezuela's gold is now in the hands of Venezuelans, secured by Venezuelans and at the service of all Venezuelans," said Venezuela's central bank head Nelson Merentes. Gold bullion makes up 71% of Venezuela's total foreign reserves, according to figures from the World Gold Council. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Monday 30 January 2012, 09:00 EST Beijing Shoppers "Snatching Up Gold", Germany "Failing to Learn Lessons of History" with Greek Fiscal Plan THE SPOT MARKET price of buying gold climbed to $1728 an ounce Monday morning London time – a slight drop from last week's close – while stock markets, commodities and the Euro all fell and government bond prices rose as European leaders met for their latest summit in Brussels. The cost of buying silver fell to $33.08 at one point – a 2.6% drop from where it ended last week. Gold fell as low as $1718 per ounce Monday morning, dropping steadily during Asian trading, though this represented a loss of only 1% on Friday's closing price. "Everybody seemed to be expecting profit taking out of Shanghai after the two Chinese bourses came back online," said one Hong Kong dealer. "As far as we can see, there wasn't much of that." During last week's Lunar New Year holiday, China saw a "gold rush", with consumers spending more on buying gold than during the 2011 festival, according to a China Daily report. "People seem crazy about gold, snatching it up more like a cheap cabbage than such a precious metal," it quotes Beijing resident Miao Miao. The value of sales at two of Beijing's top gold retailers, Caibai and Guohua, reportedly hit 600 million Yuan ($95.28 million) – a 49.7% rise on last year's sales. The gold price in Dollars meantime rose around 25% over the same period. The Yuan also appreciated against the Dollar over that time, gaining around 3.6%, which implies a rise in Chinese domestic gold prices of around 20%. Despite strike action in Belgium that has brought transport to a halt, European leaders met in Brussels on Monday, where the issues of budget discipline and the Greek debt crisis were expected to dominate discussions. "Solidarity and reliability are really coming together in this context," German finance minister Wolfgang Schaeuble said last week. "We are credibly addressing the problems in the affected countries...and in the meantime we have to demonstrate solidarity." Britain however has already walked away from the new budget treaty currently being drafted. "To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do," one British official told newswire Reuters. Denmark, which does not use the Euro, has negotiated a concession that fines imposed on a country that breaches new deficit rules would only go into the Eurozone bailout fund if the fined country were a Eurozone member – otherwise they will go to the European Union's general budget. Greece meantime has rejected a German proposal that an EU budget commissioner should have power over Greek taxes and spending. "I think it's wrong that money from the EU's structural development fund is being spent on bicycle stands," German foreign minister Guido Westerwelle said on Friday, arguing that EU funds are being squandered. The proposed budget commissioner would have the power to veto any decisions that were not consistent with targets set by Greece's international creditors. "I would rather resign as a minister than allow anybody to tell us the way we should be spending our money," Greece's culture minister Pavlos Yeroulanos told the BBC. Greek finance minister Evangelos Venizelos said the proposal "ignores some key historical lessons". 'Nein! Nein! Nein!' said the front page of Greek tabloid Ta Nea on Monday, which showed a picture of German chancellor Angela Merkel as a puppeteer, with the map of Greece depicted as a marionette. Ahead of Monday's EU summit, there was still no news of a voluntary agreement between the Greek government and private holders of its debt over how that debt should be restructured and how large should be the losses private sector bondholders take. Greece needs to its second bailout, worth €130 billion, to be approved if it is to meet €14.5 billion of maturing bond payments on March 20. Eurozone economic confidence meantime rose for the first time since March last year, according to the European Commission's economic sentiment indicator. "The outlook for economic growth in Europe in 2012 is not a healthy one," warns Ian Scott, London-based chief global strategist at Nomura. "Nevertheless, even a recession in the Euro area, and very slow growth elsewhere, is unlikely to be sufficient to undermine the market if governments and central banks are able to stabilize sovereign spreads and lessen the immediate tail risk of a messy sovereign default." Over in New York, the difference between bullish and bearish futures and options contracts held by Comex traders for selling and buying gold – the so-called speculative net long – rose for the third week in a row in the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission. "The change in the net position was largely the result of speculative longs being added," notes Standard Bank commodities strategist Marc Ground. "Net spec length is still far off Q3 2011 levels," adds a note from precious metals consultancy VM Group. "[This suggests] further moves higher are likely should sentiment remain bullish." Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Friday 27 January 2012, 08:30 EST Gold "Has Foundation to Build Next Move Higher" Following FOMC "Catalyst", Slow Physical Demand "Explains Gold's Resistance at $1730" WHOLESALE MARKET gold prices were headed for their biggest one-week rise since the start of December Friday lunchtime in London, climbing back through $1720 an ounce – a weekly gain of over 3%. Silver prices meantime hovered around $33.60 per ounce – 4.2% up on last week's close – while other stocks and commodities were broadly flat and US Treasury bond prices slipped. A day earlier, gold prices hit a 7-week high at $1730 per ounce before easing in Friday's Asian session. "Lack of physical demand partly explains the inability of gold to make a sustained move beyond the $1730 level," says Standard bank commodities strategist Marc Ground, citing this week's Chinese Lunar New Year holiday as impacting demand from China, Singapore, Malaysia and Indonesia. "[But] while slowing physical demand might provide some resistance during price rallies, we do not feel that it would be the cause of prices moving significantly lower." "The [physical] market has been like a yo-yo," one Singapore dealer tells newswire Reuters. "I think it's a good time to buy gold...but clients are all cautious. They are doing enough to roll their money but keeping it all for the possibility of buying back." "Maybe it's better to wait until Monday," reckons another Singapore dealer. "The Chinese market reopens and [we will] see whether they will buy some more gold or they will take profits." Based on PM London Fix prices, gold by Friday lunchtime looked set for its biggest weekly gain since the week ended December 2 last year. That week saw gold's biggest single-day Fix-to-Fix gain of recent months, when gold prices rose 2.5% on 30 November last year. Between that day's AM and PM Fix, six of the world's central banks announced a co-ordinated move lower the cost of Dollar funding for to the banking system. This week meantime saw the Federal Reserve's Federal Open Market Committee begin publishing members' interest rate projections on Wednesday. The majority of FOMC members expect rates to remain at or below 1% until at least the end of 2014. "The market attitude towards gold for most of January could be summed up in two words: cautious optimism," says the latest precious metals note from UBS. "Investors were reluctant to add to positions aggressively as memories of the disappointment in Q4 lingered...A fresh catalyst was needed and we think the FOMC outcome on Wednesday fit the bill. More accommodative policy is a very good foundation for gold to build on the next move higher." Between Wednesday's London PM Fix and Thursday's AM Fix – during which time the Fed made its announcement – gold prices gained 3.8%. Notwithstanding the New Year break, this was the biggest Fix-to-Fix gain since September 27. That rise in gold prices coincided with reports that European policymakers were preparing a move to recapitalize the continent's banks – though the reported proposals were not adopted. European leaders meantime are "just about to close a deal on private sector involvement between the Greek government and the private-sector community," European commissioner for economic and monetary affairs Olli Rehn said Friday, speaking at the World Economic Forum in Davos, Switzerland. A Greek deal would pave the way for Greece's second bailout, agreed last October and worth €130 billion – without which Greece will not be able to repay €14.5 billion of maturing debt on March 20. Iran – which was earlier this week hit by fresh sanctions on oil, diamond and gold dealing – has said that it may immediately halt its oil exports to Europe to pre-empt a European Union ban due to come into force July 1. Greece is thought to import around one third of its oil from Iran. Two weeks after ratings agency Standard & Poor's downgraded them to junk status, yields on 10-Yeat Portuguese government bonds hit their highest levels since the crisis began Friday morning when they traded at 15.4% – almost double the yield on equivalent Irish debt. Portugal's 5-Year bond yields breached 20%. "It makes it impossible for Portugal to access debt markets in 2013," says JPMorgan rate strategist Nikolaos Panigirtzoglou. "It's a country that still relies on the official sector in terms of financing its current account deficit and repayments and this makes it certain that we're going to get a second bailout for Portugal later this year." "The market is asking whether Portugal is really just like Greece," adds Richard Batty, strategy director at Standard Life Investments. A survey published this morning by British free newspaper Metro finds that 68% of British people believe the Euro will collapse. French bank Societe Generale's latest Hedge Fund Watch also finds that hedge funds are shorting the single currency "like never before", the Financial Times Alphaville blog reports. The Euro however rallied against the Dollar Friday morning, breaking back through $1.31. Euro gold prices were flat Friday morning, holding above €42150 per kilo (€1310 per ounce) – still a 1.7% gain for the week. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Wednesday 25 January 2012, 08:30 EST Gold "Still Respecting" Post-Lehman Trend, Fed Policy "Set to Support Gold", ECB "Should Participate in Greek Debt Efforts" SPOT MARKET gold bullion prices dropped to $1653 an ounce Wednesday morning London time – down 1.7% from Monday's high – while stock markets, commodities and the Euro all slid and US Treasuries gained after the head of the International Monetary Fund suggested the European Central Bank could take losses on its Greek bond holdings. Silver bullion fell to $31.67 – down 1.8% for the week so far. "On the weekly chart, gold is still respecting the uptrend off the October 2008 low, with key support at $1550," says the latest report from technical analysts at gold bullion bank Scotia Mocatta. "If the level of Greek debt held by the private sector is not sufficiently renegotiated," IMF managing director Christine Lagarde said this morning," then public sector holders of Greek debt should also participate in the efforts." The ECB – which started buying Greek bonds in May 2010 when the crisis first escalated – remains opposed to seeing its holdings of Greek debt restructured, according to newswire Bloomberg, which cited anonymous sources. "Once again, policy makers leave the room and hope the ECB will fill in," says Thomas Costerg, London-based European economist at Standard Chartered. "The risk is that by putting the ECB on board, as the IMF asks, this could result in debt swap negotiations restarting from scratch, which could mean additional delay to an already over-stretched timetable." Debt restructuring formed part of an agreement reached last October to give Greece a second bailout worth €130 billion – without which it will be unable to pay maturing bonds worth €14.5 billion on March 20. Over the course of Wednesday morning the Euro handed back all of this week's gains against the Dollar. In thin trade reflecting the absence of Far Eastern players during the Lunar New Year Week, Dollar gold bullion prices were down 0.8% for the week by Wednesday lunchtime. "In the absence of sustained physical interest, gold is prone to a little more downside this week as bullion continues trading with global risk sentiment," says VTB Capital analyst Andrey Kryuchenkov, adding that the US Federal Reserve looks "set to remain accommodative for now which is, as ever, gold-beneficial in the long run." "The Fed's stance should continue to support gold," agrees Marc Ground, commodities strategist at Standard Bank. "Fundamentally, we believe that the long-term causal drivers of gold are global liquidity (defined as the Fed’s Balance Sheet plus FX reserve holdings) and real interest rates." The Fed will announce its latest interest rate decision later today, and is widely expected to leave its target federal funds rate within the range 0% to 0.25%. In addition, it will publish for the first time Federal Open Market Committee members' projections for the appropriate target rate over the next few years. "We expect the rate guidance in the policy statement to move the timetable for current accommodation well beyond mid-2013 and into 2014," says a report from Citigroup fixed-income strategists Peter Goves and Nishay Patel. US president Barack Obama yesterday outlined his "Buffett rule" for tax reform, which takes its name from the billionaire Berkshire Hathaway chief executive Warren Buffett. "If you make more than $1 million a year," Obama said, "you should not pay less than 30% in taxes." Obama's address came days after Republican presidential candidate Mitt Romney disclosed that he paid 13.9% income taxes on $21.6 million of earnings in 2010. Romney disclosed his tax returns following criticism from his rival for the Republican nomination Newt Gingrich. The UK economy meantime declined by 0.2% in the fourth quarter of 2011, official data published Wednesday show. Were the economy to shrink for a second consecutive quarter, Britain would be back in technical recession. "[A negative growth rate]gives additional ammunition to those at the Bank of England who want to do more quantitative easing sooner rather than later," reckons Peter Dixon, London-based global equities economist at Commerzbank, adding that the news "gives some more credence to the idea they will move in February." The Bank's Monetary Policy Committee will make its next policy announcement on February 9. "With inflation falling back and wage growth subdued, there is scope for interest rates to remain low, and, if necessary, for further asset purchases," said Bank of England governor Mervyn King Tuesday, referring to the possibility of further quantitative easing. The news that Britain's economy had shrunk came a day after it was revealed that net public debt has breached £1 trillion for the first time in history. The Bank of England's latest survey of business conditions meantime shows spending, hiring, exports growth, borrowing and investment all weakening at the start of 2012. Inflation in the cost of labor and raw materials eased slightly. But annual inflation in the price of imports "remained elevated" says the Bank's summary for January. While the Pound has stayed relatively steady against the Dollar and Euro over the last 12 months, the Sterling price of gold bullion is up more than 25% compared to this time last year. Importers of gold bullion in India meantime are delaying buying gold following last week's decision by the government to switch to a 2% ad valorem import tax – as opposed to the previous flat rate by weight – the Wall Street Journal reports. Since the new tax is calculated by value, importers who delay will benefit if the price of gold subsequently falls. High profile investor Dennis Gartman has said that while the gold bull market "is probably still extant", he is now "neutral" on the prospects for gold bullion. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Tuesday 24 January 2012, 08:30 EST "Absence of Far East Demand" sees Gold "Succumb to Profit Taking" as Markets "Fragile" on Greek Debt Uncertainty WHOLESALE MARKET gold prices retreated to roughly where they started the week during Tuesday's morning session in London, making a 1% drop from yesterday's 6-week high to $1665 an ounce. Silver prices slipped to $31.91 an ounce – a 1% drop on Friday's close – as stocks and commodities also fell following news that Greek debt agreement remains elusive after yesterday's Brussels finance ministers meeting. "Key support [for gold prices] sits at the 200-day moving average, currently at $1643," says the latest report from Scotia Mocatta technical analyst Russell Browne. "Gold succumbed to profit-taking yesterday," adds Marc Ground, commodities strategist at Standard Bank. "The trend has continued into this morning, with the absence of Far East physical demand (due to Lunar New Year holidays) opening up the metal to further downside." European finance ministers have backed Greece in calling for private sector holders of Greek debt to take bigger losses. Private sector Greek bondholders agreed last October to accept 50% losses as part of a bailout deal aimed at reducing Greece's debt burden from 160% of annual gross domestic product to 120% by 2020. However, leaders now openly acknowledge that Greece's efforts to reduce its deficit look destined to fail. "It is obvious that the Greek program is off track," said Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers, following their meeting yesterday. Greek finance minister Evangelos Venizelos has said he expects talks with private investors over Greek debt restructuring will be finished by February 1. His counterparts in other Eurozone governments meantime confirmed plans for a second Greek bailout of €130 billion should a deal be reached – without which Greece will be unable to repay €14.5 billion of bonds that mature on March 20. "It seems as if we are far from an agreement,” reckons Yves Maillot, head of investments at French asset management firm Robeco Gestions , which oversees $6.8 billion. "The problem of solvency of countries remains, along with the question of Greece. The market situation is fragile." Euro finance ministers also discussed stricter budget rules for European Union governments as well as the introduction of the European Stability mechanism – the permanent bailout fund now due to replace the temporary European Financial Stability Facility in July, a year earlier than originally scheduled. Italy's prime minister Mario Monti, along with International Monetary Fund chief Christine Lagarde, have called for the ESM to have an effective lending ceiling of €1 trillion. Germany, however, insisted it be capped at €500 billion – a proposal with which the Eurogroup agreed yesterday. "I believe this is an important achievement," German finance minister Wolfgang Schaeuble said of the meeting's agreement. "It demonstrates that the Euro group and the European Union as a whole is capable of taking the necessary steps." Germany's manufacturing sector meantime has expanded this month for the first time since October, according to provisional purchasing managers index data released Tuesday. Here in the UK, public sector net debt breached £1 trillion for the first time last month – equivalent to 64.2% of GDP – according to the Office for National Statistics. The US on Monday imposed sanctions on Iran's third-largest bank, Bank Tejarat. Any firm that deals with it will be locked out of the US financial system. Also on Monday, the European Union banned Iranian oil imports and joined the US in imposing sanctions on Iran's central bank. Monday's actions "will deepen Iran's financial isolation, make its access to hard currency even more tenuous, and further impair Iran's ability to finance its illicit nuclear program," said US Treasury Undersecretary David Cohen. Earlier this month there were reports that sanctions imposed at the end of last year had led to Iranians buying gold as a currency hedge, and leading to concern among Iranian officials. Japan meantime is expected to announce its first trade deficit since 1980 on Wednesday, the Wall Street Journal reports. The Yen has risen over 5% against the Dollar since the start of 2011 – and is up around 40% over the last decade. Yen gold prices have risen by over 200% since January 2002 – compared to a rise in Dollar gold prices of over 450%. "Gold is negatively correlated with the US Dollar," says the gold investment statistics commentary from the World Gold Council. "In periods in which the US Dollar depreciates, gold prices tend to rise." The report (which can be downloaded here (free registration required here)) notes however that the relationship is not symmetric, with the negative correlation often weakening when the Dollar is buoyant. The report also comments that equity volatility rose faster than that of gold during periods of 2011 that saw extreme financial market stress. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Monday 23 January 2012, 08:30 EST Gold Touches Six-Week High as Technicals "Turning More Bullish", Banking Sector Negotiators "Hopeful" for Agreement on Greek Debt THE U.S. DOLLAR cost to buy gold hit a six-week high of $1677 an ounce Monday morning in London, as stock markets, commodities and the Euro all pushed higher and US Treasury bond prices dipped. "Near term technical have turned more bullish [for gold]," says the latest technical analysis from Scotia Mocatta, though it sees "psychological resistance looming at $1700." The price of buying gold in Euros however fell to €41375 (€1287 per ounce) – down slightly on Friday's close – as European finance ministers met to discuss Greek debt and a proposal to relax banking rules. The difference between long contracts to buy gold and short contracts held by noncommercial gold futures and options traders on New York's Comex exchange – the so-called speculative net long – rose for the second week running in the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission. There was no change last week however in the volume of gold held to back shares in the SPDR Gold Trust (ticker: GLD), the world's largest gold ETF. Silver meantime hit $32.82 per ounce Monday morning – 1.8% above Friday's close. "Growing investor confidence is evident in [silver] ETF positioning," reports Standard Bank commodities strategist Marc Ground this morning, citing ETF purchases of 341.8 tonnes in the past week. One London broker reported Friday that the Sprott Physical Silver Trust (ticker: PSLV) bought around 311 tonnes of silver last week. Shares in New York-listed PSLV meantime gapped lower at the start of Wednesday morning's trade, opening 9.4% down on the previous day's close – a result of "the instantaneous premium evaporation in PSLV," says Gene Arensberg of GotGoldReport, which had previously warned its readers that the shares' premium to PSLV's net asset value could disappear "at the drop of a hat." "Ouch for the faithful PSLV buyers," says Arensberg, "and shame upon the managers of PSLV for allowing the premium to get so out of whack to the upside." Eurozone finance ministers meantime met in Brussels on Monday, where they were expected to discuss the terms of Greek debt restructuring, with negotiations in Athens over recent days having failed to produce a deal. "I remain quite hopeful [of reaching agreement]," Charles Dallara, managing director of the Institute of International Finance – which is negotiating on behalf of banks that hold Greek debt – said Sunday. The IIF made an offer on Friday to accept voluntary private sector involvement that would amount to losses on Greek bonds of around 65-70%, according to press reports. Dallara described it as "the maximum offer consistent with a voluntary PSI deal". A sticking point is the size of the coupon on new bonds that will be swapped for existing ones. Both sides were thought to be close to agreeing an annual rate of between 4% and 4.5%, newswire Bloomberg reported. Germany and the International Monetary Fund, however, want to see this cut to 3%, according to the New York Times, citing officials involved in the talks. "I believe that the private sector can accept a lower coupon than the 4% average, but the question then is: will the PSI still be on a voluntary basis?" one senior Greek banker told newswire Reuters. Any deal that is not voluntary risks triggering payments on credit default swaps – which payout in the event of default. Failure to agree debt restructuring meanwhile also risks jeopardizing Greece's second bailout – without which it will be unable to pay €14.5 billion of maturing bonds on March 20. Also at today's Brussels meeting, German finance minister Wolfgang Schaeuble, along with his French opposite number Francois Baroin, will call for relaxation of banking rules, according to the Financial Times. The pair will ask for elements of Basel III – the regulations on how much capital banks must hold, due to come into force in 2015 – to be loosened for banks that own insurance companies, such as French banks Societe Generale and Credit Agricole. They also propose a three-year delay for the deadline on disclosing leverage ratios – in contrast to UK regulators, who have called for disclosure ahead of schedule. Baroin meantime has confirmed that France's proposed financial transaction tax – one of the issues that led to British prime minister David Cameron walking out of European Union talks in December – will not apply to government bonds. The US Federal Reserve meantime could make the historic move of announcing a specific inflation target when it gives its interest rate decision on Wednesday, Reuters reports. Also in the US, Newt Gingrich – who last week said the United States should consider returning to the gold standard – won South Carolina's Republican presidential primary on Saturday. One of his opponents, Mitt Romney, has subsequently bowed to calls to release his tax returns. China has seen a "New Year's rush" to buy gold to mark the Year of the Dragon, which begins today, the FT reports. "Some customers just walk in and buy a bunch of 100g gold bars all at once," it quotes one manager at Chines bank ICBC. "People like to give them away...companies come in too to buy gold bars for presents." ICBC – the world's largest bank by stock market cap – announced last week that 2.33 million Chinese citizens use its gold accumulation program, which currently holds 22 tonnes of gold. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Friday 20 January 2012, 08:20 EST Gold for the Week Down in Euros, Up in Dollars as "Currency Dictates" Gold amid "Significantly Reduced" Physical Market Activity WHOLESALE MARKET gold bullion prices in Dollars dropped to $1646 an ounce Friday lunchtime in London – down 1.4% on yesterday's high – as China prepared for the week-long Lunar New Year holiday. Commodities also traded lower, while stock markets were broadly flat overall. Prices for silver bullion dropped to $30.39 per ounce – though still 2.0% up on last week's close. "As we approach the holiday, the usual Asian physical activity has decreased significantly," says one gold bullion dealer in Hong Kong. "We expect this pattern to continue next week," adds a dealer here in London, noting that with the Shanghai Gold Exchange closed, a large part of the global physical gold bullion market will be effectively absent. "With physical demand providing little support, the Dollar continues to largely dictate movements in gold," says Marc Ground, commodities strategist at Standard Bank. Heading into the weekend, gold was up slightly on the week in Dollars Friday lunchtime, but down 1.4% in Euros. Italy's banks were the biggest borrowers at last month's 3-Year longer term refinancing operation by the European Central Bank, the Financial Times reports. Italian banks borrowed around €50 billion of the €489 billion lent by the ECB, in a liquidity operation that attracted over 500 European banks. "The market has underestimated how meaningful the scheme could be to avert a credit crunch," reckons Morgan Stanley's Huw van Steenis, who compiled the LTRO data. ECB president Mario Draghi said last week that as a result of the operation, there has been a reopening of some credit markets "which had completely shut down". The amount of borrowing at the next LTRO, scheduled for the end of next month, is expected to be lower, Draghi said yesterday. "This is about buying time," reckons John Davies, London-based fixed-income strategist at German bank WestLB. "It's only when the market believes Italy and Spain have returned to sustainable debt levels that you can say the crisis has truly ended." Yields on Italian 12-month Treasury Bills have fallen from 4.5% to just over 3.5% since last month's LTRO, while 10-Year bond yields are also down, though more slightly – dropping from 6.7% to just under 6.3% this morning. Yields on 30-Year debt however have edged higher – rising from 6.7% to 6.9% since the day of the LTRO. "For the time being, the ECB's operations are working at the short end [of the yield curve]," says Werner Fey, fund manager at Frankfurt Trust Investment, which oversees around €6.5 billion worth of assets. "But for the long end, we have a lot of uncertainties around...the government problems for the Euro sovereigns are unresolved." The latest draft of the fiscal treaty agreed at last month's European Union summit contains reference to an "automatically" triggered "correction mechanism" for cases where national budget deficits deviate from target, newswire Bloomberg reported Friday. Over in India, the government has amended the changes to gold import duties announced Tuesday. Refined gold will still be taxed at 2% of its value, but unrefined gold will only be subject to a 1% levy. As well as raising revenue, the Indian government hopes to "discourage imports so that the Rupee steadies against the Dollar," according to one senior government official quoted by newspaper India Today. "Encouragingly, we are seeing some Indian [gold] buying coming through," noted Standard Bank's Ground Friday morning, "although this could easily evaporate if the Rupee weakens, given the current price sensitivity of the country's buyers." Turkey meantime has offered "one illustration of the increasing use of gold as a financial tool," says the latest precious metals note from French investment bank Natixis. "It emerged this week that the decision by the Turkish central bank to allow the use of gold within banks' reserve requirements led to an increase in local banks' gold holdings of 63 tonnes (during October and November) to 179 tonnes," Natixis says. "Around the world, banks have expanded their use of the gold market as a means of securing access to US Dollar financing." Preliminary manufacturing data for China – the world's second-largest source of private gold bullion demand after India – suggests the sector continued to contract in December. HSBC's purchasing managers index rose slightly to 48.8 – with a reading of more than 50 required to imply sector expansion. Here in the UK, China's sovereign wealth fund has bought a 9% stake in Thames Water, the firm that supplies drinking water to London and much of southern England. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Wednesday 18 January 2012, 08:30 EST Gold "Seeing Resistance at $1667", IMF Taps Up BRICs for Funding, New Lehman-style Crisis "Could Engulf Banks" in US and Europe THE SPOT MARKET price to buy gold climbed to $1658 an ounce during Wednesday morning's London trade – 0.8% up on Asian session lows – following reports that the International Monetary Fund is seeking to boost its lending capacity by $1 trillion. European stock markets also recovered from an early dip, with industrial commodities also edging higher. Prices to buy gold remained below the five-week high of $1667 hit yesterday, though by Wednesday lunchtime it was up 1.0% for the week so far. "Gold is working on its third up week," says the latest market commentary from technical analysts at Scotia Mocatta. "[Gold] faces critical resistance at $1667 [which] was the mid-November low. Our view is that while $1667 holds then big picture risk remains bearish." Price to buy silver meantime hit a Wednesday morning high of $30.43 – 2.1% up on last week's close – after briefly dipping below $30. "We believe the medium term risk for silver is another move lower to $26.10," say the Scotia analysts. If silver falls below $28 an ounce "industrial end-users should certainly be active again," adds the latest precious metals update from German refiner Heraeus, noting that industrial silver demand appears held back at current levels. The IMF meantime is asking Brazil, China, India, Japan and Russia to help it boost its lending capacity by $1 trillion, according to one anonymous IMF official who spoke to newswire Bloomberg. Oil-exporting nations have also reportedly been asked to contribute, as the IMF prepares for a potential deterioration in the Eurozone crisis. "Recent developments accelerate the long-run trends of [global] economic convergence and declining US hegemony," said Bank of England Monetary Policy Committee member Adam Posen in a speech yesterday. "Importantly, this will reduce shock-absorption and provision of public goods to the international system as a whole." In October last year, Brazil's finance minister Guido Mantega said he was opposed to the idea of Brazil buying European government bonds, adding that any assistance should come via the IMF. The World Bank today warned that ""the risk of a much broader freezing up of capital markets and a global crisis similar in magnitude to the Lehman crisis remains." "In particular," says the twice-yearly Global Economic Prospects report, "the willingness of markets to finance the deficits and maturing debt of high-income countries cannot be assured. Should more countries find themselves denied such financing, a much wider financial crisis that could engulf private banks and other financial institutions on both sides of the Atlantic cannot be ruled out." Greece meantime will resume negotiations with its creditors over the level of 'haircuts' private sector bondholders, such as banks, should take. Talks broke down last Friday, with Charles Dallara, managing director of the Institute of International Finance, which is representing the banks, saying that some Eurozone government "collaborators" were not following an agreement reached last October that private sector losses should be 50%. There is also ongoing uncertainty over what would constitute voluntary or involuntary losses – and thus what would represent a formal default – amid fears that credit default swaps, a form of bond insurance, could be triggered. "The policymakers don't want to reward the hedge funds for their perceived participation in the sovereign problem," says Ira Jersey, New York-based interest-rate strategist at Credit Suisse. As things stand, Greece will be unable to make a €14.5 billion bond payment that comes due on March 20. On the currency markets, the Euro gained against the Dollar Wednesday morning, breaching $1.28 for to make a 1.5% rally from last week's low. The gold price in Euros meantime – in contrast to the Dollar price to buy gold – fell throughout Wednesday morning, approaching Asian session lows and hitting €41449 per kilo (€1289 per ounce). Stocks also rallied, with the FTSE in London up 0.8% by lunchtime from its morning low. "As we see it [though] a bearish reversal in risk sentiment is entirely plausible once the morsels of positive news that have sustained it so far in 2012 dry up and markets are forced to confront the larger issues," notes one gold bullion dealer here in London, adding that a "dramatic risk-off move" could lead more investors to buy gold, "although likely US Dollar strength could limit any gains. UK unemployment meantime rose to a 17-year high last month, hitting 2.68 million, figures from the Office for National Statistics published Wednesday show. The unemployment rate meantime rose to 8.4% last quarter, the highest level since the start of 1996. Over in China, a number of analysts report rumors that the central bank may cut the reserve requirement ratio – the amount of cash banks must hold relative to their assets. "This is...adding to support for precious metals, [but] historically, changes in the reserve requirement have little bearing on commodity prices over the long term," says Standard Bank commodity strategist Marc Ground. Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Monday 16 January 2012, 08:45 EST Gold Gains Alongside Dollar, "Clear Winner" from S&P Downgrades is Germany as "Only Bond Haven Left in Eurozone" U.S. DOLLAR spot gold prices climbed to hit$1647 an ounce Monday morning in London – 0.8% below last week's high – while stock and commodity markets were broadly flat as markets absorbed Friday's news of cuts to nine Eurozone sovereign credit ratings. "Spot gold [however] is expected to fall to $1417 per ounce over the next three months," warns Reuters technical analyst Wang Tao in the newswires Q1 2012 commodities outlook published Monday. "[The] medium-term downtrend that started at the Sept. 6 high of $1,920.30 will continue." Spot silver rose to $30.10 per ounce – 0.9% up on Friday's close. The Euro meantime fell 1.8% in Monday's Asian session – hitting its lowest level since September 2010 – before stabilizing as Europe opened. Conversely, the Dollar Index – which measures the US currency against six others – hit a 16-month high at 81.7. Spot gold in Euros hit its highest level since December 8 at €41803 per kilo (€1300 per ounce) – 5.4% off September's all-time high. Ratings agency Standard & Poor's has cut its credit ratings for nine Eurozone members, having placed fifteen members on CreditWatch negative at the start of December. S&P cited "insufficient" policy initiatives from Eurozone governments as the main driver for the decision, as well as its concern that fiscal austerity measures could prove "self-defeating". Those affected include France, which had its rating cut by one notch from AAA to AA+. Five others, including Germany, had their existing ratings affirmed. S&P's move, which was announced after markets closed on Friday, leaves only three triple-A rated Eurozone members – Finland, the Netherlands and Germany. Of those, only Germany has a 'stable' outlook, with S&P's outlook for the other two given as 'negative'. "S&P's action has reinforced the market's view that the only haven in the Euro region bond market is Germany," says Peter Chartwell, fixed-income strategist at Credit Agricole in London. "Germany comes out as a clear winner," agrees Jacques Cailloux, chief European economist at Royal Bank of Scotland. "The French downgrade will complicate future negotiations around fiscal integration and comes at a delicate time domestically...[Germany] will have its position at the negotiating table strengthened even further." "There are a lot of risks still ahead of us and we don't think gold has priced in these risks," reckons Societe Generale commodity strategist Jeremy Friesen, adding that S&P's decision "is one of the incremental pushes for gold to appreciate." Representatives of Europe's banks meantime are considering asking French president Nicolas Sarkozy and German chancellor Angela Merkel to try to break the deadlock in negotiations over the size of losses private sector Greek bondholders should take, after talks broke down on Friday, the Financial Times reports. European leaders agreed last October that private sector involvement (PSI) should amount to losses of 50%. However, "some [Eurozone government] collaborators are not following that decision," says Charles Dallara, managing director of the Institute of International Finance, which is negotiating with Greece on behalf of private sector bondholders. Germany has long been a proponent of PSI as a key component of any Greek crisis solution. French banks meantime have the highest exposure to Greek sovereign debt of any major European banking sector, according to Reuters data. In China meantime, protesting workers at the Sanyo electrical factory, have clashed with police in the southern city of Shenzhen, according to Chinese press reports. The protests over pay and job security are the latest to hit China's manufacturing sector. Last week, workers at Foxconn, which produces Microsoft's Xbox, threatened to jump off the factory roof in a dispute over severance pay and job transfers, while production was halted at an LG Display factory last month after workers went on strike. China's Q4 2011 GDP figures are due to be released Tuesday, with many economists forecasting that growth will have dropped below 9% to its slowest pace since early 2009. Here in London, representatives of the Hong Kong Monetary Authority met with UK Treasury officials today to discuss steps aimed at making London a major offshore center for Chinese currency dealing. Demand for gold jewelry in India grew between 5% and 7% last year – and is set to grow by up to 15% in 2012 – according to Mehul Choksi, head of India's largest jewelry retailer said Sunday. However, dealers in India report that last week's rise in spot gold prices has curbed demand at the start of the harvest season, which began yesterday. The difference between bullish and bearish contracts held by noncommercial gold futures and options traders on New York's Comex exchange – the so-called speculative net long – rose 2.7% over the week ended last Tuesday to the equivalent of 433.7 tonnes of gold bullion, ending four weeks of declines, according to the latest data from the Commodity Futures Trading Commission. "The change in the net position was the result of speculative shorts being unwound," says Standard Bank commodity strategist Walter de Wet. "Although only a modest improvement this past week, the decline in short positions is encouraging. Perhaps the speculative market is becoming less apprehensive about gold's prospects." Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Friday 13 January 2012, 08:45 EST Gold Trade Strengthens, Sarkozy: Euro Value "Still Too High" SPOT MARKET Dollar gold prices dipped to $1637 an ounce Friday morning London time – a 1.4% fall from Thursday's high – as the Euro fell against the Dollar following a successful-yet-disappointing Italian bond auction. In contrast to Dollar gold prices, the gold price in Euros gained throughout Friday morning, hitting €41,326 per kilo (€1285 per ounce) around lunchtime. Silver prices dipped to $29.69 – 3.3% below yesterday's peak – while stocks and commodities were mostly flat and government bond prices gained. "We feel the market is once again comfortable with gold," says Scotia Mocatta's latest technical analysis report, "but will liquidate on a break of $1605." Heading into the weekend, gold prices are up 1.5% in Dollar terms, while on a fortnightly basis gold is looking at a gain of 4.7%. Based on PM London Fix prices, this would be gold's biggest two-week gain since the fortnight ended 4 November. Italy successfully auctioned €4.75 billion of 3-Year government bonds this morning, paying an average yield of 4.83% - down from 5.62% paid at a similar auction two weeks ago. "On the whole [however] the auction results are mixed to soft," cautions Rabobank strategist Richard McGuire, adding they were "certainly far from the humdinger we saw in Spain yesterday." "It doesn't defeat the notion that the [European Central Bank] extraordinary liquidity provisioning will support peripheral debt but it perhaps tempers expectations as to what degree these operations will support." ECB president Mario Draghi argued yesterday that last month's 3-Year longer term refinancing operation – at which European banks borrowed close to €500 billion – had averted a potentially disastrous funding crisis. "The ECB can be rightly justified in saying that the Armageddon we were facing toward the end of last year does seem to have been addressed," reckons James Nixon, chief European economist at Societe Generale. Speaking at a press conference following the announcement that the ECB would leave interest rates on hold, Draghi said that "the [ECB's] monetary stance is and will remain accommodative". "Further rate cuts," says SocGen's Nixon, "will only be forthcoming if, for example, we see signs of an outright credit crunch." The decline in the Euro in the second half of last appears to have boosted the Eurozone's trade balance. The 17-nation Eurozone saw its external trade surplus grow strongly in November – rising to €6.9 billion from €1.0 billion a month earlier – data published Friday by Eurostat show. However, the full 27-member European Union still ran an external trade deficit of €7.2 billion, though this was less than half that run in October. The Euro ended December around 12% below its 2011 peak against the Dollar, and currently trades around $1.28. "With a rate of $1.29 or $1.30 ... [the Euro] is still too high," said French president Nicolas Sarkozy back in January 2011. Hungary – whose government debt is now rated as junk by all three major ratings agencies – must show "strong commitment" to economic reform before the International Monetary Fund will consider opening negotiations on a bailout, IMF managing director Christine Lagarde said Thursday, following a meeting with Hungarian officials. "We fully understand and agree with the experts from the IMF," said Tamas Fellegi, the Hungarian minister appointed to negotiate with the IMF. Hungary's prime minister Viktor Orban said this morning however that "there are areas where views differ significantly" between his government and the IMF. China meantime saw its foreign exchange reserves fall to $3.18 trillion in the fourth quarter of last year, a period that included the first consecutive monthly fall (in December) since early 2009. "The decline in foreign exchange reserves in Q4 is consistent with the sharp reversal in capital flows out of emerging markets in general and the region in particular," reckons Andy Ji, economist at Commonwealth Bank of Australia. The news "might also be contributing to gold's downward movement," reckons Standard Bank commodity strategist Marc Ground. "This can be explained in terms of the negative effect that a slowing down in Chinese foreign-exchange reserve accumulation would have on global liquidity and the ability of governments, especially those of developed nations, to borrow." Copper and gold provide "the best value opportunities" for investment this year, according to a report published by Goldman Sachs on Friday. The Goldman report also argues that there was a "wedge" between gold prices and real interest rates towards the end of last year. Short-term gold lease rates – the difference between the return on lending cash and the return on lending gold – were negative for much of 2011, falling towards the end of the year. "Demand for US Dollars drove the gold lease rates to unprecedented negative levels as US Dollars became increasingly more valuable than gold," the report says. "This new demand for Dollars was mostly from European banks using the gold market to source US Dollar liquidity when their funding from the US money markets dried up, which created a significant amount of gold selling." Ben Traynor BullionVault -- London Gold Market Report from Ben Traynor @ BullionVault Wednesday 11 January 2012, 08:40 EST "Bullish Macro Factors" to Drive Gold in 2012 Rather than Dollar, "Ringleader of Intolerance" Germany sees Negative Growth in Q4 SPOT MARKET gold prices rose to a one-month high of just under 1647 per ounce Wednesday morning – a 5.1% gain for January – before easing back as the Dollar rallied on the currency markets. The gold price in Euros meantime touched levels not seen since December 8, hitting €41,502 per kilogram (€1290 per ounce), while the Euro currency fell to 15-month lows against the Dollar following disappointing German growth data. The previous day saw spot market Dollar gold prices break through their 200 day moving average, which yesterday sat at $1626.86 per ounce by PM London Fix prices. "The move higher today was not expected as it was against a bearish picture," writes Russell Browne, technical analyst at bullion bank Scotia Mocatta, adding that "it will take a number of days of closes above the 200 day moving average to give the bulls confidence to re-enter the market." "While the Dollar may not see a significant correction soon," says a note from Societe Generale, "and is likely to continue to gain against the Euro as the Eurozone crisis persists, the negative effects of a stronger Dollar on gold are likely to be largely diminished in 2012, allowing the bullish macro drivers to dictate price action once again." Silver prices meantime rose to $30.31 per ounce – level with the week's high and 8.6% up for the month so far – before they too eased back, while stocks and commodities ticked lower and major government bond prices gained. Germany's economy shrank by 0.25% in the fourth quarter of 2010, newswire Reuters reports, citing an official from the Federal Statistics Office. For 2011 as a whole, gross domestic product grew at 3.0%, down from 3.7% a year earlier, official data show. Growth in the Eurozone meantime was half that initially reported in Q3, European Union statistics agency Eurostat now says, after revising Q3 2011 growth from 0.2% to 0.1%. "Germany cannot isolate itself so easily from tensions within the Eurozone," says Joerg Zeuner, chief economist at VP Bank in Liechtenstein. "In addition the export sector is facing a difficult period given the fall in global demand." "The best resolution [to the Eurozone crisis]...is that Germany take steps to reverse its trade surplus," argues Beijing-based economist Michael Pettis. "[However,] countries that run large and persistent trade surpluses never seem to understand that their surpluses are mainly the consequences of domestic policies that generate additional domestic growth by absorbing foreign demand." Italian prime minister Mario Monti has called for more support from the European Union ahead of a meeting in Berlin today with German chancellor Angela Merkel. "I am demanding heavy sacrifices from Italians," he tells German newspaper Die Welt. "[Unless] concrete advantages become visible...a protest against Europe will develop in Italy, including against Germany, which is seen as the ringleader of EU intolerance, and against the European Central Bank." Almost the entire €489 billion the ECB lent to Eurozone banks at last month's 3-Year longer term refinancing operation has been redeposited with the central bank reports news agency Bloomberg, citing estimates from Barclays Capital made using ECB data. "It's illusory to think that the [3-Year LTRO] will translate into credit generation," says Philippe Waechter, chief economist at Natixis Asset Management in Paris. "It will assuage some of the anxiety banks have regarding their liquidity needs. But they've engaged into a massive overhaul of their strategy and shrinkage of their balance sheets, which is, coupled with the deteriorating economy, not compatible with increasing credit." Authorities in Iran meantime have blamed Israel for a car bomb that killed a nuclear scientist in Tehran. Also in Iran, local press reported yesterday that officials had denied rumors that the authorities were blocking any text messages that contained phrases such as 'Dollar' or 'foreign currency'. The imposition of US sanctions has reportedly led to increased interest in holding gold and Dollars as a hedge against Rial depreciation. Gold bullion dealers reported strong demand from India on Wednesday, Reuters reports, as the Rupee rallied 1.5% against the Dollar to hit a one month high. The weak Rupee saw record domestic gold prices in India last year, weighing on demand during what is traditionally a strong season for buying gold. China meantime imported a record volume of gold from Hong Kong in November, according to official data. The Hong Kong government's Census and Statistics department reports that just under 102.8 tonnes of gold were imported by China, equivalent to 18% of China's total private sector gold consumption in 2010 by World Gold Council figures. Imports from Hong Kong are generally regarded as a proxy for overall imports. Ben Traynor BullionVault --
London Gold Market Report from Ben Traynor BullionVault Monday 9 January 2012, 08:40 EST Gold Remains Bullish, Germany Gets Paid To Borrow Money U.S. DOLLAR gold bullion prices touched $1623 an ounce Monday morning London time – a 1% rally from the low hit during Asian trading – before falling back slightly, while stocks, industrial commodities and major government bond prices all ticked lower. "[Gold bullion] remains above its 3-year bullish support that now lies at $1544," says technical analyst Russell Browne at bullion bank Scotia Mocatta. Prices for silver bullion rose to $29.26 per ounce – 1.9% down on last week's high – while the Euro rallied against the Dollar in early European trading but couldn't sustain momentum. "The strength of the Dollar is playing a role in limiting appetite [for commodities]," says Nick Trevethan, Singapore-based senior commodity strategist at ANZ Bank. "But Europe is still a basket case and investors are hoping to see more easing out of the European Central Bank at some point." Germany successfully auctioned €3.9 billion of 6-month government bills – known as Bubills – Monday morning. However, the bid-to-cover ratio was down on the previous auction last month, falling from 3.8 to 1.8. In addition, some of the bills were sold at negative nominal interest rates – with the average yield coming in at minus 0.0122%. Monday's was the first auction at which bidders could bid in terms of price rather than yield. "Through the submission of price bids with prices above 100 it is possible to submit price bids reflecting negative yields," said a Bundesbank statement issued before the auction. In other words, some investors were this morning prepared to pay more than €100 today in order to receive €100 in June. Elsewhere in Berlin, German chancellor Angela Merkel is set to have talks with French president Nicolas Sarkozy today on how to implement tighter budgetary rules agreed at the December 9 summit. "It's important we do start to see some progress," says Goldman Sachs chief European economist Huw Pill, adding that the Eurozone crisis will not be fixed without "German largesse". Banks meantime will need to take "substantial haircuts" on their holdings of Greek debt, reckons International Monetary Fund chief economist Olivier Blanchard. Representatives for the banking sector agreed to take losses of 50% as part of an agreement reached last October, but their losses "may have to be larger" Blanchard said Friday. By contrast, the governor of Cyprus's central bank, Athanasios Orphanides – who is also a member of the European Central Bank's Governing Council – has called on Eurozone leaders to abandon plans to impose private sector losses. "It is a thoroughly inefficient way of dealing with the moral hazard issue that we are still paying for now," he wrote in Friday's Financial Times, arguing that reversing the decision would reduce financing costs for other Eurozone countries, even though it would raise them for Greece. Officials from the European Union and IMF are due to visit Greece on Saturday. Before then, the ECB will hold its first interest rate meeting of 2012 on Thursday, while Italy and Spain hold bond auctions on Thursday and Friday. China's money supply grew by 13.6% in the year to December – more than the consensus analysts' forecast of 12.9% – following the central bank's decision at the end of November to cut the amount of cash banks are required to hold relative to their assets, known as the reserve requirement ratio. A note from economists at JPMorgan this morning says it expects the PBOC to announce three cuts in the reserve requirement ratio in the first six months of this year. This prediction follows an interview given by PBOC governor Zhou Xiaochuan to news agency Xinhua, in which he said the PBOC needs "to be prepared for a poor external environment". Gold volumes on the Shanghai Gold Exchange – which hit record highs last Wednesday – remained strong on Monday, traders report. Chinese Lunar New Year falls on 23 January this year – the earliest since 2004, when it fell on January 2002. China's banks were last week "on the bid" to buy gold head of Lunar New Year, one trader noted last week. In addition, last month China's authorities banned all gold exchanges with the exceptions of the Shanghai Gold Exchange and the Shanghai Futures Exchange. Gold bullion, however, "is not cheap in local currencies in Asia," says one Singapore-based dealer, adding that his firm only saw "light buying" on Monday, although premiums over Spot Prices were up to $1.70 from $1.30 the week before. Over in New York, the difference between the number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex exchange – the so-called speculative net long – fell slightly the week ended last Tuesday at the equivalent of just over 422 tonnes of gold bullion, the latest data from the Commodity Futures Trading Commission show. The decline marks the fourth-straight week of falls in the speculative net long, taking it to its lowest level since April 2009. "The sustained deterioration in the net position is a signal that the speculative market remains wary of gold’s prospects, which might explain the failure of gold to sustain upward momentum," reckons Marc Ground, commodities strategist at Standard Bank. The rebalancing this week of index funds that track commodity prices could weigh on gold and silver prices, according to one dealer, who reckons around $5 billion of gold bullion will be sold. "The rebalancing is mostly but not exclusively a matter of selling the previous year's outperformers and buying the underperformers to bring the portfolio composure back in line," says a note from Saxo Bank. Swiss National Bank head Philipp Hildebrand has resigned over the controversy surrounding his wife's purchase of US Dollars three week's before the SNB pegged the Swiss Franc to the Euro, newswires Bloomberg and Reuters reported Monday lunchtime. 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 2012 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. --
London Gold Market Reportfrom Ben Traynor @ BullionVault Friday 6 January 2012, 09:00 EST Gold Up 5% on Week in Euros as "Recession Data" Hit Europe, US "Can't Decouple" from Eurozone Crisis Despite Positive Jobs News THE DOLLAR cost of buying gold hovered around $1620 an ounce Friday morning London time – becoming a bit more volatile following the release of US employment data but failing to establish a definite direction – while stocks and commodities edged higher. Silver prices meantime eased around lunchtime, hitting $29.15 per ounce. On currency markets the Dollar rallied – pushing the Euro down further – after the nonfarm payrolls release showed the US economy added 200,000 private sector non-agricultural jobs in December. The US unemployment rate fell from 8.7% in November (revised up today from 8.6%) to 8.5%. From its high above $1.30 on Tuesday, the Euro meantime has since fallen 2.5% against the Dollar. By Friday lunchtime the price of buying gold in Euros – which touched a 4-week high of €40994 per kilo (€1275 per ounce) looked set for a weekly gain of over 5%. The Dollar cost of buying gold meantime was headed for a weekly gain of around 3.6%. "A close above the 200 day moving average at $1632 is needed to shift the market [for buying gold] to Neutral from Bearish," reckons Russell Browne, technical analyst at bullion bank Scotia Mocatta. "While gold is pushing towards its 200 day moving average at $1633, we are not convinced that it can sustain a break above this level yet," adds Standard Bank commodities strategist Walter de Wet. "Liquidity remains locked up as the European interbank market continues to malfunction...in the physical market, we continue to see steady buying of gold. But this demand is more likely to provide support for gold on dips below $1600 rather than push it substantially higher." Friday's Asian trade saw demand for buying gold in physical form, according to one Shanghai trader. "Liquidity is back in the market," said the trader. "With the Europe outlook still grim, investors would prefer to put their dollars in some safety assets, such as gold." In the US, however, the volume of gold to held to back shares in the world's largest gold ETF, the SPDR Gold Trust (GLD), has not changed since before Christmas. This contrasts with the world's biggest silver ETF, the iShares Silver Trust (SLV), where steady outflows since the middle of last month has seen the volume of silver bullion held fall to its lowest level since September 2010. "We expect silver demand to slow during [2012]," says the latest precious metals note from French bank Natixis, citing "reduced investment demand alongside the current weakness in global industrial demand." "There have been good data out of the US," said Jeremy Friesen, Hon Kong-based commodity strategist at Societe Generale, speaking ahead of today's nonfarm payrolls release. "But ultimately the US can't decouple from the European crisis...there are going to be enough reasons to be worried about global growth and the financial system in the next quarter or two, and gold should benefit from that." German factory orders fell 4.8% between October and November last year, Bundesbank figures published this morning show. Retail sales for the 17-nation Eurozone as a whole meantime fell 2.5% in the year to November – compared to a 0.7% y-o-y drop to October – according to official European Union data, while the European Commission's economic confidence indicator hit its lowest level in over two years last month. "This data has recession written all over it," says Martin van Vliet, Eurozone economist at Dutch bank ING. A report in French newspaper Les Echos suggests the governments of France, Belgium and Luxembourg are considering fully nationalizing Dexia. The three governments pledged last October to guarantee for a decade €90 billion of the bank's loans, nationalizing its Belgian division. In Switzerland meantime Phillip Hildebrand, head of the Swiss National Bank – which last year pegged the Swiss Franc to the Euro – has refused to resign after it emerged that his wife bought US Dollars three weeks before the peg was announced. Here in the UK – where the Pound this morning hit a 15-month high against the Euro – oil company Shell has announced it will close its final salary pension scheme, the last FTSE 100-listed company to do so. The Sterling price of buying gold hit £1052 per ounce Friday lunchtime in London – 4.6% up on the start of the week. Hungary's leader Viktor Orban has expressed support for central bank governor Andras Simor as the government prepares to renew negotiations with the International Monetary Fund and the European Union over a possible bailout. The IMF and EU last month walked away from negotiations after Orban's government refused to repeal new legislation seen as threatening the central bank's independence. 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 2012 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. --
London Gold Market Report from Ben Traynor @ BullionVault Tuesday 20 December, 08:45 EST Year-end Gold Price "Could Be Weak but Volatile", Requires "Large Scale Liquidity" to Restore Market Confidence SPOT MARKET gold prices climbed to $1608 an ounce Tuesday lunchtime in London – a 2.8% gain from last week's low – while stocks and commodities traded higher, with the exception of the FTSE in London which fell lower. Silver prices rose to $29.51 per ounce – still 0.9% down on last week's close – while major government bond prices fell and the Euro gained amid signs of progress on the Eurozone crisis. "Liquidity in the precious metals space remains light," warns Walter de Wet, commodities Strategist at Standard Bank. "Short-term the [precious metals] complex is likely to remain vulnerable to bouts of long liquidation amid concerns over funding levels," agree analysts at Swiss refiner MKS. Despite this morning's rally, gold remains around 8% down since the start of December. "Profit-taking and year-end book squaring by large investors, including mutual funds and macro hedge funds...help explain the recent drop in prices," says a note from HSBC. "Gold prices may stay weak but volatile for the rest of this year, we believe, as trading volume is likely to dry up in the run-up to the year-end holidays." Eurozone finance ministers agreed Monday to lend an additional €150 billion to the International Monetary Fund. Four other European countries outside the Eurozone – Czech Republic, Denmark, Poland and Sweden – also said they will contribute extra funds. Britain meantime did not offer additional funding, but added it will "define its contribution" early next year. "The UK has always been willing to consider further resources for the IMF, but for its global role and as part of a global agreement," said a statement from HM Treasury. Germany's Bundesbank pledged €41.5 billion – but on condition that these funds go to the IMF's general resources and are not earmarked for Europe, news agency Bloomberg reports. Boosting the IMF by €150 billion is "obviously a small-scale solution" says former UBS chairman Peter Kurer. "What really would be needed in the ideal world would be Eurobonds or a substitute which can bring large-scale liquidity and confidence into the markets." Tuesday saw the beginning of the European Central Bank's 3-Year Longer Term Refinancing Operation (LTRO), whereby banks will be able to borrow from the ECB for three years while posting distressed Eurozone government debt as collateral. "These measures address the risk that persistent financial markets tensions could affect the capacity of Euro area banks to obtain refinancing over longer horizons," ECB president Mario Draghi told the European parliament yesterday. Draghi also confirmed that the ECB has lowered the reserve ratio – the proportion of a bank's balance sheet it is required to hold with a central bank – from 2% to 1%, as well as expanding the list of collateral eligible for refinancing. Spain's government saw its borrowing costs fall Tuesday morning when it auctioned €5.64 billion of short-term Treasury bills. The average yields on 3-month T-bills fell to 1.735% – down from 5.11% last month – while 6-month yields were down from 5.227% to 2.435%. "The expectation is that a lot of banks have been buying [peripheral Eurozone government debt] into the LTRO," one trader told Reuters. "It's going to be an interesting battle in January when we start getting big chunks of supply, but at the moment people were probably underweight their benchmarks and short Italy and Spain, and this is an opportunity for them to square positions." Banks in the United States meantime are still vulnerable to the Eurozone crisis, despite selling most of their European government bonds, research published by the Federal Reserve Bank of San Francisco warns. "US banks have mostly shed their direct exposure to European sovereign debt," noted San Francisco Fed research advisor Sylvain Leduc earlier this month. "But they remain subject to the risk that European trading counterparties might not be able to meet their obligations." Over in India, gold demand remained subdued yesterday despite last week's fall in gold prices, newswire Reuters reports. "Consumers are not buying due to an inauspicious period," says Ashok Jain of Mumbai jeweler Chenaji Narsinghji. "Demand will improve only after January 14," he added, explaining that the Hindu calendar month of Khar Mass – considered an inauspicious time to buy gold – runs until then, having begun on December 16. Rupee gold prices have fallen from all-time highs hit in recent weeks, as the Rupee fell on currency markets to record lows against the Dollar. Ben Traynor BullionVault --
London Gold Market Report from Ben Traynor @ BullionVault Monday 19 December, 08:45 EST Physical Demand "Will Determine Support for Gold" while Selloff was "Driven by Euro Weakness" WHOLESALE MARKET gold bullion prices rose to $1607 an ounce Monday lunchtime in London – 0.5% up from last Friday's close – while European stocks and commodities were broadly flat and government bond prices eased. Silver bullion meantime rose to $29.36 per ounce just ahead of New York's open – 1.2% down on last week's close. Earlier on Monday Asian stock markets sold off following news of North Korean leader Kim Jong Il's death. South Korea's Kospi index fell 3.4%, while on the currency markets the South Korean Won sold off while the Dollar strengthened. Gold bullion will fall below $1500 per ounce during the next three months, according to a poll of 20 hedge fund managers, economists and traders conducted by news agency Reuters. "You're looking at Euro weakness, rather than anything else, as the driving force behind the sell-off [in gold bullion last week]," reckons David Jollie, analyst at Mitsui Precious Metals, adding that many traders will be reluctant to buy gold so close to the end of the calendar year. "Whatever your [longer-term] view, you have to ask what the chances are of making money by the end of the year...that says to a lot of people that this is not a market to get longer in." Over in New York, the difference between the number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex exchange – the so-called speculative net long – fell 10.6% in the week ended last Tuesday, the latest data from the Commodity Futures Trading Commission show. "The key factors that will determine how supported the gold market is on the downside will be whether the 'sticky' ETP [exchange-traded product] holdings remain relatively stable and whether physical demand responds to much lower prices," says a research note from Barclays Capital. The volume of gold bullion held to back shares in the world's largest gold ETF – the SPDR Gold Trust – has fallen 1.4% since the end of last month to just under 1280 tonnes. Over the same period, gold bullion prices have dropped around 8%. European finance ministers are meeting Monday in an effort to meet a self-imposed deadline for arranging €200 billion of loans promised to the International Monetary Fund at the European Union summit earlier this month. Ministers also hope to make progress on drawing up new budget rules for national governments. "They'll try to get as much done as they can before Christmas," says Carsten Brzeski, Brussels-based senior economist at ING Group. "But it's doubtful they'll put markets in a Christmas mood...there is still so much uncertainty." Ratings agency Fitch warned on Friday that it may downgrade Belgium, Cyprus, France, Ireland, Italy, Slovenia and Spain. Fellow ratings agency Moody's meantime announced that it has cut Belgium's rating by two notches to Aa3. "A 'comprehensive solution' to the Eurozone crisis is technically and politically beyond reach," said a statement from Fitch. "Of particular concern is the absence of a credible financial backstop. In Fitch's opinion this requires more active and explicit commitment from the [European Central Bank] to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States." ECB president Mario Draghi however says his organization will not step up its program of buying government bonds on the open market – said to be capped at €20 billion per week. "People have to accept that we have to, and always will, act in accordance with our mandate and within our legal foundations," Draghi says an an interview in today's Financial Times. "The important thing is to restore the trust of the people – citizens as well as investors – in our continent. We won't achieve that by destroying the credibility of the ECB." Fitch's warning follows a similar move by Standard & Poor's earlier this month, which saw S&P put every Eurozone member on CreditWatch negative. Back in August, S&P cut its rating on US sovereign debt. Newswire Bloomberg today suggests that downgrade has proved to be "absurd", since US Treasury bond prices have since gained more than 4%. "It is the ability to print one's own currency to pay government bond investors back under any circumstances that makes a government bond a government bond, i.e. a (credit) risk- free asset for hold-to-maturity investors," points out Elga Bartsch, London-based chief European economist at Morgan Stanley in London, in a recent client note. Here in the UK, chancellor George Osborne is expected to give his full backing to the Independent Commission on Banking and promise to pass legislation by 2015 that will separate investment and retail banking. UK house prices meantime have fallen 2.7% over the last 12 months, according to figures published today by Rightmove. "It looks like no nation, no market, no investor is free from this negative outlook. And gold is no exception," says a note from Swiss gold bullion refiner MKS. "Gold appears to be playing a difficult role at the moment," adds the latest note from German precious metals group Heraeus. "On one side it is the stability anchor in times of economic and financial crisis, on the other hand there are increasing signs...that gold is in wake of the equity and interest markets." (c) BullionVault 2011 --
London Gold Market Report from Ben Traynor @ BullionVault Friday 16 December, 08:45 EST "Huge" Physical Demand, Gold Hits $1600; "Bears in Driver's Seat" as European Governments Face Possible Downgrades SPOT MARKET gold prices briefly touched $1600 an ounce Friday lunchtime in London – 2.3% up on this week's lows – while stocks and commodities were broadly flat compared to Thursday's closing prices. "Physical market demand continues to improve," says Walter de Wet, commodities strategist at Standard Bank. "The demand is not stellar, but much stronger than a week ago." "We saw huge physical demand [on Friday] from Thailand and Indonesia," adds one dealer in Singapore. "But there isn't much demand from India, mainly because the Rupee is very weak." Silver prices rose to $29.96 per ounce – still 7.0% down on last week's close – while on the currency markets the Euro rallied against the Dollar despite fears that Eurozone government downgrades may be imminent. Heading into the weekend, Dollar gold prices were down 6.9% for the week. Based on gold prices at the afternoon London Fix, the last time gold fell further in one week was the first week of December 2008. Bigger Friday-to-Friday falls were seen in October of that year. Today's London Fix would have to come in below $1488.75 per ounce to surpass the 12.9% weekly drop in gold prices seen in the week ended 17 October 2008. Nevertheless, net outflows saw the volume of gold bullion held to back shares in the SPDR Gold Trust (ticker: GLD) – the world's largest gold ETF – fall yesterday by nearly 15 tonnes to just under 1280 tonnes, the biggest one day outflow by volume since August this year. "Bears are in the driver seat," says Miguel Perez-Santalla, New York-based vice president of sales at Heraeus Precious Metals Management. "But the problems in Europe have not been solved and buying will come back and we will see higher prices because of a lack of confidence in the financial system." "Could Eurozone sovereign ratings be cut as early as this evening?" asks this morning's note from Standard Bank currency analysts Steve Barrow and Jeremy Stevens. Ratings agency Standard & Poor's last week announced it had placed every country in the Eurozone on CreditWatch negative, stating that Eurozone governments have demonstrated they "are not prepared to act collectively in a way that convinces markets". "This sounds to us very reminiscent of the warning S&P gave to the US government ahead of the August 2 debt ceiling deadline," note Barrow and Stevens. "The US had its AAA rating taken down to AA+ a few days later. Notably the rating cut occurred late on Friday August 6, after the markets had closed." The potential downgrade of France – which is currently rated AAA – "does not seem justified based on economic fundamentals," Bank of France governor Christian Noyer said Thursday. "Or if it is, they should start by downgrading the UK, which has a bigger deficit, as much debt, more inflation, weaker growth and where bank lending is collapsing." "It is true," agreed French finance minister Francois Baroin today, "that the economic situation in Britain is very worrying today and one prefers to be French than British at the moment on the economic level." "If the international community doesn't work together," International Monetary Fund chief Christine Lagarde warned last night, "[it risks] retraction, rising protectionism, isolation...this is exactly the description of what happened in the Thirties and what followed is not something we are looking forward to." Lagarde added that the Eurozone crisis "is not a crisis that will be resolved by one group of countries taking action". "It is going to be hopefully resolved by all countries, all regions, all categories of countries actually taking action." European Central Bank president Mario Draghi meantime has repeated that the ECB's program of buying government bonds – which is said to be capped at €20 billion per week – is "neither eternal nor infinite." In a speech given in Berlin yesterday, Draghi also said a "firewall" to prevent contagion across different sovereign debt markets "will be in place and can be activated when needed subject to proper conditionality". Eurozone leaders have agreed to "assess the adequacy of the firewall by next March," he added. Ratings agency Fitch meantime has cut the credit ratings of seven major banks. Bank of America, Citigroup and Goldman Sachs have been downgraded by one notch from A+ to A. Barclays, BNP Paribas, Credit Suisse and Deutsche Bank have all been cut by two notches from AA– to A. "With access to liquidity being constrained, market participants have increasing problems to refinance," says a note from Credit Suisse researchers. "As a result they have to sell their assets – including precious metals – to raise the much needed cash. This is the main reason why gold prices fall on days of increasing funding stress." Over in the US, the House of Representatives is due to vote today on a spending bill agreed last night that, if approved, will avert a shutdown of government agencies. Negotiations continue meantime on a separate deal to extend unemployment benefits and a payroll tax cut. "Congress should not and cannot go on vacation before they have made sure that working families aren't seeing their taxes go up by $1,000 and those who are out there looking for work don't see their unemployment insurance expire," US president Barack Obama said Thursday. (c) BullionVault 2011 --
London Gold Market Report from Ben Traynor @ BullionVault Thursday 15 December, 09:00 EDT Market for Gold "Looking At Long, Sideways, Volatile Action" as "Bearish Sentiment" from Eurozone Crisis Continues to Hit Markets SPOT MARKET gold prices climbed to $1594 an ounce by Thursday lunchtime in London – 1.9% up on this morning's low – while stocks and commodities also regained some ground after recent heavy losses. Silver prices gained 2.7% to around 29.20 per ounce – still a 9.4% loss from last week's close. Despite Thursday morning's rally, gold prices too remain heavily underwater on the week – showing a 6.8% loss from last Friday's close. Wednesday alone saw gold prices drop more than 4%, breaking through the 200-day moving average – which by BullionVault's calculations was sitting around $1613 per ounce Thursday morning. "Smaller markets tend to get hurt more during periods of heavy selling," explains Ole Hansen, vice president of trading advisory at Saxo Bank in Copenhagen. "The main problem from an upside perspective is that investment decisions are not being made this time of year which should limit the upside for now." "We're in for a long sideways volatile market," adds Jeremy Friesen, Hong Kong-based commodity strategist at Societe Generale. "We can go through weeks, if not months, of slow drawn-out process, because it's ultimately a fiscal problem in Europe that needs to be resolved." On the currency markets, the Euro struggled to recover much lost ground against the Dollar Thursday morning – following three days of falls that have seen it fall 3% to below $1.30. The Dollar Index – which measures the Dollar's strength against a basket of major currencies – is at 12 month highs, up nearly 2% for the week so far. The fall in gold prices, though, is "not only because of the stronger Dollar," one trader in Shanghai tells newswire Reuters. "The year-end fund redemption and margin call demand from other markets also contributed to the sell-off...we might see further weakness in prices as the sentiment around Europe remains rather bearish." The general secretary of Germany's Free Democratic Party – a junior member of Angela Merkel's governing coalition – stepped down on Wednesday, reportedly following a poor turnout in a party referendum on the latest Eurozone rescue plan. The ballot – whose results are due to be revealed tomorrow – was prompted by an anti-bailout FDP member. Merkel now has "a dead-duck coalition partner whose actions may now become unpredictable," says Nils Diederich, professor of politics at Berlin's Free University. "That's a risk for Merkel as she tries to navigate parliament through giving up some sovereignty in the name of fiscal union as well as increase taxpayers' input into rescuing the Euro." European leaders agreed last week to lend up to €200 billion to the International Monetary Fund – which the IMF in turn could then lend to European governments. Germany's central bank will contribute up to €45 billion "as long as there is a fair distribution of the burden amongst the IMF members," Bundesbank president Jens Weidmann has said. "If these conditions are not fulfilled, then we can't agree to a loan to the IMF." Here in Britain, a spokesman for prime minister David Cameron – who opposed last Friday's agreement – has denied reports that the UK will commit €30 billion to the IMF. Cameron has reportedly told members of parliament he does not expect Britain will provide more than £10 billion of additional funding. Eurozone ministers are said to have penciled in a British contribution of up to €50 billion, according to a Financial Times report. In the US meantime, Federal Reserve chairman Ben Bernanke made it clear that he "has no intentions whatsoever of furthering US involvement in the [Eurozone] crisis," according to one Republican senator who a private meeting with Bernanke. China announced Wednesday it will impose duties on US car imports. "US vehicles benefiting from subsidies and dumping on the China market have substantially damaged China's auto industry," said a statement from China's Ministry of Commerce. General Motors vehicles will face total duties of nearly 22%, while duties on Chrysler vehicles will be 15%. Both firms were bailed out by the US government in 2009. Over in Hong Kong, the world's largest listed jewelry chain Chow Tai Fook saw its share price fall 8% in its first day of trading Thursday. Fellow debutant New China Life, Hong Kong's third-largest insurer, saw its shares drop 9.8%. "Investors are holding on to their cash, doubtful about not only new stock, but also shares in the secondary market," says Ronald Wan, managing director at China Merchants Securities in Hong Kong, which oversees about $1.5 billion. "Worries about Europe will keep investors cautious in the months to come." In India meantime – the world's number one gold bullion consumer according to the most recent World Gold Council data – the Rupee hit a fresh record low against the Dollar today at over Rs54.3 to the Dollar. The Rupee has lost more than 20% of its value against the Dollar this year, sending Rupee gold prices to record highs in recent weeks. (c) BullionVault 2011 --
London Gold Market Report from Ben Traynor @ BullionVault Thursday 10 November, 08:15 EST Picture for Gold "Bullish" as Rumors Hint at ECB "Nuclear Option", Signs of Contagion "Already Visible in France" U.S. DOLLAR gold prices rallied to $1772 an ounce Thursday morning London time – 1.7% below the week's high – while European stock markets also regained some ground as rumors spread that the European Central Bank might intervene in the debt crisis. Silver prices climbed to just below $34 per ounce around lunchtime – 3.8% below this week's high – while commodities were mixed and major government bond prices fell. Earlier in the day, gold prices fell throughout Thursday's Asian trade – hitting a low of $1754 per ounce, having risen to $1798 the day before. "Flow wise we saw nothing but selling today," says one Hong Kong bullion dealer. "Gold's flirtation with $1800 has ceased for the time being," adds a note from the London desk at Mitsui Precious Metals. "The selling seems largely motivated by a need for cash to cover losses in equities," the notes adds, though it also points out that as gold prices rose by over $120 in ten days, "a correction is not entirely surprising". "The wider picture still looks bullish, however, so another test of $1,800 before the weekend is a strong possibility." Italy's Treasury Department successfully auctioned €5 billion worth of 12-Month Treasury bills Thursday morning – paying an average yield of 6.087%, a Euro era high. At the last 12-month T-bill auction a month ago, the Treasury sold €7 billion worth at a 3.570% average yield. Yields on 10-Year Italian bonds fell back below 7% this morning. Demand at the auction was "solid", the Wall Street Journal reports – with the ECB buying Italian debt, according to a trader cited by the WSJ. "In all likelihood...[policymakers] will have to try to find some sort of nuclear button to turn back the markets," says a note from Standard Bank analysts Steve Barrow and Jeremy Stevens this morning. "[One thing that] could certainly work to end the crisis [would be] if the ECB promised to buy unlimited amounts of debt from the outset. Will it sign up to this? ECB members argue that such action is prohibited but...crises call for rule books to be ripped up and this is one rule that could become a casualty." "The ECB will be drawn [in] like everyone else by the weight of gravity," agrees a Eurozone official quoted by Reuters. However, "the situation has deteriorated so dramatically a large-scale asset buying by the ECB would not necessarily be a panacea," reckons Alberto Gallo, senior European credit strategist at Royal Bank of Scotland. "I do not think the ECB on its own could bring back the market to the point before Italy succumbed." Yields on 10-Year French government bonds meantime rose above 3.3% Wednesday morning – still below their one month high hit just before last month's Euro Summit. However, the spread over 10-Year German bund yields hit a 21-year high at 154 basis points (1.54 percentage points). "The contagion to core countries is already visible in France," reckons Gerard Moerman, head of rates and money markets at Aegon Asset Management, who manages €20 billion of assets. "Lots of investors don't trust it anymore or want to get rid of the exposure...we've seen some of our clients wanting to leave France." The world is in danger of a "lost decade" of stagnant economic growth, International Monetary Fund managing director Christine Lagarde told a forum in Beijing yesterday. "If we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand." In Berlin meantime German chancellor Angela Merkel called for "a breakthrough to a new Europe". "That will mean more Europe, not less Europe...a community that says, regardless of what happens in the rest of the world, that it can never again change its ground rules, that community simply cannot survive." "If the leaders of the Eurozone want to save their currency," British prime minister David Cameron said Thursday, "then they – together with the institutions of the Eurozone – must act now. The longer the delay, the greater the danger." Euro gold prices were flat throughout Thursday morning, zig-zagging either side of €1300 per ounce, as the Euro recovered some ground against the Dollar following yesterday's 2.2% drop. "Looking at what is going on in Europe a further round of liquidation across commodities, including gold, is possible," warns Tom Kendall, precious metals research analyst at Credit Suisse. Here in London, the Bank of England's Monetary Policy Committee voted Thursday to keep its interest rate o0n hold at 0.5% – where it has been since March 2009. The MPC also voted to maintain its quantitative easing program at £275 billion. Over in the US, Jefferson County, Alabama, has filed for the largest municipal bankruptcy in US history, after country officials failed to reach agreement with creditors to refinance $3.1 billion of borrowing. The creditors – which include investment bank JP Morgan – bought bonds issued by Jefferson County in order to finance a sewer building project. (c) BullionVault 2011 --
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