Gold Market "Decidedly Bullish" on Surging Inflation; Government Bond Prices Fall; UK Cash-Raising Fails
Gold Prices rose in London on Monday morning, undoing most of last week's 1% loss to trade above $963 per ounce as the New York opening approached.
Crude oil bounced from a seven-week low beneath $129 per barrel after US forecasters put a one-in-three chance on Tropical Storm Dolly reaching hurricane strength as it enters the oil-rich Gulf of Mexico.
European stock markets reversed an early drop to stand around 1% higher by lunchtime, led by mining and energy shares.
Tokyo's stock and Gold Markets were closed for a national holiday.
"Sentiment [towards Gold] has turned decidedly more bullish on the back of inflation," notes today's Metal Matters report from Scotia Moccatta, the precious metals dealer.
"Funds have corrected their overbought situation leaving the market more balanced again. Expect the up-trend to resume and for prices to climb back towards $1,000 per ounce and beyond."
After consumer-price inflation was reported at 16-year highs last week across the United States, Eurozone and UK, government bond prices fell further today from June's "safe haven" highs.
That pushed the yield on two-year German bunds six points higher to 4.60%.
A new survey of 29 investment managers running almost $1.5 trillion in funds shows a further deterioration in sentiment towards US debt. The report from Ried, Thunberg & Co. in the US says to expect further hikes in open-market interest rates as a result.
The yield on 10-year US Treasury bonds – used to fund and price the bulk of US corporate and mortgage lending – closed 13 points higher last Friday, ending at a four-week high of 4.09%.
The Federal Reserve's overnight lending rate remains at 2.0%. Consumer price inflation jumped at its fastest rates since 1982 in June, reaching 5.0% year-on-year.
"The June US leading indicators index, due to be released today, could provide direction for the greenback," writes Manqoba Madinane at Standard Bank in Johannesburg.
"Market expectations are for a 0.1% decline. A surprise on the downside could see the US currency lose more ground today [but it] could put precious metals under more strain.
"We view the indicator as important to the outlook for PGM demand" – meaning the industrial platinum-group metals.
Platinum prices last week fell 9% to reach a five-month low after the auto-industry – which accounts for half annual demand for use in catalysts – reported sharp output reductions at GM, Chrysler and Ford.
"Platinum has held the long-term trend line at $1840 per ounce," says today's precious metals note from Mitsui in London, "and palladium has found support at $410.
"The question is whether the thin [summer] conditions will be a reflection of what is to come. It is a traditionally quiet period and it may be a case of watching other markets for guidance.
"Gold is holding its trend channel and a close [today] above $962 should point to higher prices. Silver looks a little more vulnerable but should follow gold's lead."
In the Western world's financial markets today, the UK's largest home-lender – HBOS – sold only 8.3% of a £4 billion rights issue ($8bn).
That gives the underwriters – investment banks Morgan Stanley and Dresdner Kleinwort – until the end-of-Tuesday to place the rest of the cash raising.
It also leaves the rest of London's banking sector with little hope of finding underwriters for any rights issues they were hoping to float.
"Our banking system is a safe and a sound one," insisted US Treasury secretary Hank Paulson in a series of Sunday morning TV interviews this weekend.
"This is a very manageable situation...Our regulators are focused on it."
Government-sponsored mortgage agency Freddie Mac – down 61% on the stock since mid-June – may reduce the quantity of home loans it buys from US banks, according to official filings made Friday.
It's also considering the sale of existing securitized debt as well as cutting its dividend before trying to raise $5.5bn in a new rights issue.
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