Gold News

Gold picks up as London trade ends

Gold picked up after London closed Wednesday after dropping when New York opened.

"The strength in the Dollar in the last couple of days has prompted some long liquidation," notes Frederic Panizzutti, a gold analyst at MKS Finance, "but we would expect the Dollar to weaken further again and act as a catalyst for gold to move back higher."

"We are clearly positive for the first half of the year," he adds, "on expectations that the Dollar has more downside potential on the back of easing monetary policy in the United States in a context of an extending trade deficit."

Helen Holten, head of commodity research at Standard Chartered Bank, agrees with this focus on the Dollar. But she expects gold to reach its peak for the year between now and March, before slipping as the US Dollar recovers on higher Fed interest rates.

"The key here is the perception of an acceptable price for gold," she said on Tuesday. "As gold fell over the last few days, demand kicked in at just above $600 per ounce. Demand from fabricators [meaning jewelers] becomes pretty firm around $580 to $590."

Standard Chartered forecasts lower oil prices this year, easing gold's appeal as an inflation hedge. Holten is also weighing possible gold buying by central banks, however.

“Russia notably entered the market in a significant way over the past year," she says, "and it is likely that other oil producers have or will follow suit."

Private-sector banks in Russia cut their gold purchases 8% by volume in 2006, according to an Interfax report. An unidentified source at Gokhran, Russia's state-owned gold, silver and gemstones store, is reported to have said that 42 Russian banks bought 161.9 tons of bullion last year, down from 176.6 tons in 2005.

In Dollar terms, however, that would mean Russia's private banks bought 24.5% more gold in 2006 than the year before. Not even oil-rich investors will soak up one-third increase in gold prices without trimming their physical purchases.

The same is true of jewelry demand from consumers across the world. The largest market by far is India. It swallowed one ounce of gold in every five ounces sold worldwide last year.

India's investment and adornment uses of gold are confusing for outside observers, however. High dealing costs and strict exchange controls make gold one of the few Rupee hedges available.

Now India is set to get its first exchange-traded gold fund. It will add liquidity to a gold market renowned for its ability to buy and hold through downturns in the gold price.

What might India's first gold ETF mean for the international gold market? Click here to read a detailed analysis now...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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