Monday, September 7, 2009

London Gold Market Report


Gold Investment "Underpinned by Wealth Preservation" as Inflation & Systemic Risk Keep Price Near $1,000

THE PRICE OF GOLD held near last week's close in Asia and London on Monday morning, trading at $994 an ounce as analysts agreed $1,000 would soon be reached but argued whether that price is sustainable.

"Overall, the big picture [for gold] remains bullish," says the Sept. edition of Metal Matters from London market-makers Scotia Mocatta.

"The combination of a correction to the current over-extended equity rally, and the knock this would give investors and banks, could well see more investors turn to bullion again as they seek refuge."

"Until confidence returns, Gold is likely to remain sought after."

"Investment demand for Gold is still very strong, and that is going to help drive the price higher over time," says Helen Henton, head of commodity research at Standard Chartered, speaking to the London Telegraph.

"We think it's going to break $1,000 by the fourth quarter, mainly driven by a weakening US Dollar."

Early Monday saw the Dollar drop to a one-week low vs. the Euro and a fortnight's low against the Pound.

For both UK and Eurozone investors looking to Buy Gold today, the price dipped towards Friday's lows at £604 and €692 per ounce respectively.

World stock markets meantime jumped, adding 2.4% to the UK's FTSE-100 on light volume, while crude oil futures ticked higher above $68 per barrel.

New York was closed for the Labor Day holiday. Long-dated government bond prices slipped, pushing 10-year Treasury yields up to 3.44%.

"Gold will be able to temporarily break through the $1,000 mark," says Eugen Weinberg, senior analyst at Commerzbank, "[but] there is insufficient fundamental support to allow for a sustained rise beyond this level."

"Inflation expectations are idle, physical demand is absent and scrap sales could only intensify at these prices," reckons Andrey Kryuchenkov at VTB Capital in London. "As soon as risk appetite comes when the markets settle down ahead of the fourth quarter, gold will suffer a painful correction."

Gold imports to India – formerly the world's No.1 consumer market, but overtaken by China's Private Gold Demand so far this year – may total between 460 and 550 tonnes in 2009, according to estimates made at an industry conference in Goa on Sunday, down by 25% and more from 2008.

Imports to date are down more than 50%, says the local office of trade-marketing group the World Gold Council.

"We may end up being just about 35% lower than last year," reckons independent analyst Bharghav Vaidya, speaking to Reuters. "People who were de-stocking will buy. Plus there will be compulsory buying for [India's Sept-Oct.] festivals."

"Gold should benefit from a weaker Dollar over the long term [and] another factor expected to help prices is physical demand from consumers in developing economies," write David Haughton, Andrew Breichmanas and Bart Melek in a new report for Canada's BMO Capital Markets.

"As disposable incomes increase, [it's] fuelling Gold Prices as a store of value and status symbol."

"Wealth preservation is underpinning" new Gold Investment, says Walker – quoted by South Africa's Mineweb today – "[and] there's no doubt that the inflationary argument has been gathering pace. Expectations of inflation...will continue to dictate the dynamic of the gold price."

Assigning last week's 4.1% jump to "a few fairly significant lumpy transactions" in an otherwise quiet summer market, Paul Walker of the GFMS data consultancy says current Gold Prices create "a little more downside risk in the short term."

Looking at the threat of financial default – the key driver of gold's first break above $1,000 an ounce, when Bear Stearns collapsed in March 2008 – "Systemic risk remains in the global financial system, [but] it is much less than the start of the year," writes Walter de Wet at Standard Bank today.

"Credit and default risk have declined [according to credit-default swap prices] making assets such as equities more attractive. Yet despite the decline in risk, Gold remains well supported. We expect this support to continue into fourth-quarter 2009 and first-quarter 2010."

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