Gold News

Gold Prices Erase 0.9% Gain Despite Fresh Ukraine Tensions, Physical Tightness Fades Again in London

GOLD PRICES dropped all of this week's earlier 0.9% rise lunchtime Wednesday in London, falling back to $1303 per ounce as European stock markets rose with weaker government bond prices despite fresh tension between Western allies and Russia over Ukraine.
 
With Russian, US, European Union and Ukrainian politicians due to meet next week in Paris, Kiev today gave separatists in the east a "48-hour ultimatum" to quit regional government buildings.
 
Russian equities fell to buck Wednesday's global trend, and the Dollar held near 2-week lows at $1.38 per Euro.
 
That edged gold prices for Eurozone investors 0.7% below last week's finish at €944 per ounce.
 
China gold prices ended Wednesday unchanged, with a slight Shanghai premium of $1 per ounce over London quotes turning into a 50c discount at the close.
 
"Gold was particularly well bid through the Asian session Tuesday," notes one bank trading desk in Asia.
 
"There was some speculator short-covering in the Far East," adds Japanese trading house Mitsui's Singapore team, "[with] Chinese participants playing catch-up after Monday's [Ching Ming] holiday."
 
"Physical demand in China appears to be reviving," says Commerzbank's commodities team, also ascribing the week's earlier gold price rise to Ukraine tensions.
 
But while "imports by China picked up in February," says bullion bank Scotia Mocatta's latest monthly report, "we wait to see if that remains the case in March given that premiums [over London gold prices] have fallen."
 
Turning to former world No.1 consumer India, "Any easing of import restrictions would likely boost [gold price] sentiment considerably," Scotia reckons.
 
Finally launched on Monday as voting began in India's month-long national elections however, the BJP manifesto fails to mention gold or the anti-import rules imposed by the ruling Congress Party in summer 2013.
 
Wednesday in London, heart of the world's wholesale gold market, the interest rate offered to would-be borrowers of gold ticked back above 0% for the first time in a week on 1-month swaps.
 
Typically positive, the so-called Gold Forward Rate offers an incentive to potential gold borrowers who have to pay storage fees, and lose interest on cash, for the duration of the swap.
 
GOFO rates fell to 4-month lows in mid-February at minus 0.05% on 1-month swaps, suggesting tighter supply to meet short-term wholesale gold bullion demand.
 
" Fading physical tightness and positive global growth [will] cap rallies" in gold prices, says the latest note from French investment and London bullion bank Societe Generale's precious metals analyst Robin Bhar.
 
That echoes comments last week from analysts at fellow London market-maker Deutsche Bank, who also cited rising GOFO rates as a sign that "support from physical tightness has begun to fade."

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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