Gold News

Gold Prices Rally, "Key Level" at India's $1050 IMF Purchase Level Says LBMA Panel

GOLD PRICES recovered $25 in London Wednesday morning of yesterday's $50 plunge per ounce, trading as high as $1302 while world stock markets slipped as the US government shutdown spread to new departments ahead of this month's debt-ceiling deadline.
 
Commodities also recovered, and government bonds extended their gains, pushing US interest rates down to 2.62% on 10-year debt.
 
Gold prices for Euro investors rose less sharply than in Dollars, however, as the single currency jumped – and Italian bonds gained – after Rome's coalition government won a vote of confidence against former prime minister and convicted criminal Silvio Berlusconi.
 
Rising from near two-month lows today, gold prices will move to $1405 per ounce by November next year, according to the average forecast from delegates at this week's London Bullion Market Association conference in Rome, which ended Tuesday.
 
The best-attended LBMA annual conference to date, its final session saw 4 leading figures from the bullion market agree that $1050 per ounce is a "key level" for gold prices.
 
"Technically it's a good floor," said Marwan Shakarchi, chairman of refining group MKS Switzerland.
 
Prices at $1050 are also, he noted, where the Reserve Bank of India bought 200 tonnes of gold from the IMF in late 2009 – a move announced during the LBMA's conference, then in Edinburgh.
 
"Believe me," Shakarchi said, "the RBI technocrats will have analyzed every angle" before deciding to buy gold at those prices "as insurance".
 
"The RBI didn't take that decision lightly," agreed independent analyst Andy Smith. "And they really do know a thing or two about gold."
 
"It's a good call," agreed Jeremy East of Standard Chartered Bank and Philip Klapwijk, formerly GFMS and now running boutique consultancy Precious Metals Insights. But prices need to reach that level, the panel also agreed, to "clear out weak longs" from gold investments before a new bull phase can begin.
 
"One reason for pessimism short-term," said Klapwijk, "is that the surplus [of total supply over jewelry demand] remains high historically. Gold prices need to fall further to narrow the gap."
 
On his forecast, 2013 will see net gold investment worldwide fall dramatically from 2012 to $40 billion – "close to pre-financial crisis levels."
 
Elsewhere today, the shutdown spread across US government departments spread as the $17 trillion debt-ceiling drew nearer.
 
"There are no other legal and prudent options to extend the nation's borrowing authority," said Treasury secretary Jack Lew on Tuesday, again urging lawmakers to end the shutdown and avoid a possible US default on its debt repayments and spending by raising the debt ceiling limit.
 
Speaking at the LBMA conference's debate on gold prices Tuesday, "Detroit is not an outlier," said Andy Smith.
 
Defaulting today on $600 million of debt due for repayment, "The city has only half the debt per head of the US national average," Smith noted, comparing the devalued Dollar to the debasement of ancient Rome's currency, the Denarius.
 
"Can you imagine what would happen if the Fed sold what it's bought?" said Smith, noting the US Federal Reserve's vote last week not to "taper" its current $85bn of government purchases each month.
 
As the Fed's Treasury bond holdings come due, said Smith, "It will be called one arm of government forgiving another. But it will in fact be one giant step close to Weimar [hyperinflation]."

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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