Gold News

Gold Prices Flat Again But Shanghai Premium "Healthy" as London Gold Borrowing Rates Rise

GOLD PRICES held in a tight range again Tuesday morning in London, trading less than 0.2% down from last week's finish as crude oil ticked higher with major government bond interest rates.
 
European stock markets continued their rally from last week's 4.5% drop, but Asian equities were muted after new data showed China's services sector flat-lining in July.
 
Sinking from June's 15-month high, the Markit consultancy's non-manufacturing PMI of 50.0 was the lowest reading since the series began in 2005.
 
Gold prices in Shanghai closed Tuesday slightly lower in the Yuan, but extended their $2 per ounce premium above London quotes of $1291.
 
"The premium in Shanghai," Bloomberg quotes analyst Nikos Kavalis at London-based consultancy Metals Focus, " might be a sign that the inventory overhang in China we saw earlier this year is not a big issue."
 
"We expect a very healthy rebound in physical demand in the last four months of the year."
 
Suggesting tighter supply in London – heart of the world's wholesale trade – the cost of borrowing gold in one-month deals today held near the highest levels since May, with gold lenders asking for a rate of interest on top of the cash interest they earn during such gold-for-money swaps.
 
This rare situation, as shown on data collected from the market-making members of the London Bullion Market Association, applied throughout summer 2013's sharp gold rally from 3-year lows, and again as prices rose this spring.
 
Amongst private investors in the West, BullionVault users last month grew their aggregate holdings to a new record above 33 tonnes of gold as prices slipped 2.6%.
 
Sales of gold and silver products by Australia's Perth Mint, in contrast, fell to a 3-month low.
 
That took year-to-date sales of gold to 8.3 tonnes, data from the government-backed mint said, down 43% from the first 7 months of 2013.
 
The US Mint has sold 56% fewer American Eagle gold coins so far in 2014 than the same period last year.
 
Yesterday saw the gold bullion needed to back shares in the SPDR Gold Trust (NYSEArca:GLD) drop by 1.8 tonnes, taking the world's largest exchange-traded gold fund's holdings back to 800 tonnes – a five-year low when first reached last December.
 
"While the present negative factors remain," says a note from Germany's Commerzbank – "a strong US Dollar, weak physical demand in Asia, and weak coin sales in the West – we do not envisage any serious price gains" in gold.
 
Facing what Baring Asset Management calls "increasing global demand for resources," mining-stock manager Duncan Goodwin says "Investors should focus on investing in companies not commodities."
 
The Baring Global Resources Fund shows an average annual return of -11.6% since August 2011, according to data from MorningStar.
 
The Philly Gold Bugs Index of gold and silver mining stocks (IndexNasdaq:XAU) has a compound annual growth rate of -20.5% over the last 3 years.
 
Physical gold bullion shows a compound annual return of -12.4% from its summer 2011 records above $1900 per ounce, hit at the start of September that year.
 
Israeli troops meantime pulled out of Gaza Tuesday morning amid the 72-hour ceasefire starting last night, but militant Syrian rebels again clashed with Lebanese troops at the border town of Arsal.
 
The United Nations said today that the number of internal refugees from the fighting in eastern Ukraine has jumped to 100,000 in the last two months.
 
A white paper adopted Tuesday by the Japanese cabinet calls China's recent actions over disputed islands " profoundly dangerous", making the security situation in East Asia "increasingly severe."

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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