Gold Adds to 4% Bounce as Europe Flirts with Recession; Gold Mining Supplies Fall Despite Record Gold Investment Demand
Gold added to yesterday's sharp bounce early in Asia and London on Thursday morning, nearing the Wall Street open almost 4.4% above the week's low at $836 per ounce.
Crude oil traded above $116 per barrel – more than $3 above the three-month low hit on Tuesday – while base metals rose sharply.
US government bond yields held flat ahead of today's Consumer Price release.
"I think the lower price has attracted buyers into the market," said David Moore at Commonwealth Bank of Australia earlier. "[But] given the extreme volatility of the Gold Price in recent days, I think picking the near-term direction is very difficult."
Asian stock prices were mixed today, with the Japanese Nikkei shedding another 0.5% as the US Dollar climbed back towards Wednesday's seven-month highs vs. the Yen on the forex market above ¥110.
European shares bounced meantime despite news that the 15-member Eurozone experienced a sharp slowdown in economic growth between April and June.
Germany's GDP actually shrank by 0.5% from the previous quarter, the first contraction in four years, while France is now flirting with a "technical recession" according to one analyst after its GDP fell by 0.3%.
Consumer price inflation, on the other hand, held above 4% year-on-year across the Eurozone – right where European interest rates now sit, leaving cash savers with negative returns after tax.
"A hike [in European interest rates] seems increasingly unlikely," notes Walter de Wet for Standard Bank in Johannesburg. "From a currency perspective, these developments are bearish for the Euro."
Given the oft-remarked correlation between the Euro and Gold of the last five years, a falling Euro might also suggest cheaper gold. But "retail sales in the US remain under pressure," de Wet goes on, "with advanced retail sales falling 0.1% in June."
US consumer-price data is due out later today, with analysts expecting 5.2% inflation for July. The Federal Reserve's key interest rate stands at just 2.0%.
That means a net loss of purchasing power costing more than 3¢ in the dollar for US cash savers per year.
Today the independent RealtyTrac consultancy said that US home foreclosures jumped 55% nationwide in July from the same time last year.
One in every 464 households received notice of foreclosure last month.
"From a jewelry demand perspective, declining retail sales could put a drag on US gold demand towards the seasonal pick-up during Q4," Walter de Wet continues. But looking at the Indian and East Asian gold markets, meantime, "we maintain that jewelry demand holds the key to driving gold higher again, and such demand could well be spurred by the recent fall in the Gold Price."
Frantic gold-dealing in Vietnam – where the government suspended gold imports last month in a bid to support the fast-sinking Dong currency – led the State Bank to warn investors on Wednesday against buying the metal.
The Vietnam News Agency says the "sudden slump in world prices" seen at the start of this week "caused a rush of investors to gold shops throughout Hanoi...There were even traffic jams in gold-dealing Tran Nhan Tong street from 10am to noon.
"At Bao Tin Minh Chau Jewelry Corp. clients stood on each other’s toes with wads of notes to Buy Gold."
Phi Dang Minh, deputy head of Foreign Exchange Management at Vietnam's central bank, blamed the recent surge in Gold Prices – up by 54% in the year to July – on "temporary speculation".
Annual inflation in Vietnam has reached 25%. The stock market stands almost two-thirds below its level of New Year's Day. Real estate prices in Hanoi have halved since the start of January.
On the currency markets this morning, the Dong weakened again vs. the Dollar, but the weak European data failed to dent the single currency any further, leaving the Euro down 7% from mid-July at $1.4900.
The British Pound added half-a-cent at $1.8730, down more than 2.5% so far this week.
The Gold Price in British Pounds touched a three-session high of £447 per ounce. The Gold Price in Euros touched €560 – still more than 14% below its all-time top of mid-March.
"Total [world gold] demand in value terms rose 9% on year-earlier levels to reach $21.2 billion in the second quarter of 2008," reports the latest Gold Demand Trends from the World Gold Council – "a new all-time quarterly record" driven by investors.
Demand by volume fell sharply from the jewelry, industrial and dental sectors.
"While the sense of economic or financial crisis lasts, gold investment demand will continue to be robust," the report concludes, "although high prices are likely to generate a certain amount of profit taking. Under these circumstances, jewelry demand is likely to remain subdued in most countries.
"Only China and Egypt experienced a rise relative to year earlier levels in tonnage terms [between April and June]. In China’s case, the rise was just 2% while in Egypt the rise was somewhat larger at 8%.
"Countries that enjoyed strong growth in net retail investment inflows included China, the US and Vietnam. Higher inflation and falling stock markets were a common theme in all three countries, highlighting the inflation hedging and safe haven motives for investing in gold."
More telling for long-term investors, as the Financial Times notes today, total gold supplies to the global market grew by just 1% during the second quarter of this year – even as the Gold Price hit new all-time records – "and the advance was only possible because a large amount of old gold returned to the market in the form of scrap."
Newly mined gold fell 4% by volume "with increases in Russia and China unable to offset falls in Indonesia, South Africa and Australia."