Gold Starts Week 1.4% Higher as Speculative "Heat" Eases, IMF & G7 Press Ahead with "Easy Money" Regime
The price of Gold held tight around London's AM Gold Fix of $1004.25 an ounce early today, trading 1.4% above last Monday's start as world stock markets remained more than 4% down for the week.
Government bond prices rose, pushing the yield offered by 10-year UK gilts down to 3.43%, their lowest level since late April.
Major currencies were unmoved after the G7 and IMF meetings in Istanbul this weekend failed to name or address the US Dollar's record volatility over the last 12 months.
Commodity prices fell meantime, led lower by a 1% drop in US crude oil prices.
"Gold is traditionally a safe haven, but it hasn't behaved like one lately," says the Wall Street Journal, noting gold's 13.5% gain in 2009 to date, even as the S&P equity index rose by more than 50% from March's 12-year low.
Between 2002 and end-2007, however, gold and equities also moved higher together, gaining alongside crude oil, the Euro, emerging markets, real estate and credit derivatives.
"Gold's rally amid signs of stability suggests that some investors are seeking more than safety in gold," the WSJ says today.
"As risk appetite returns to asset markets, this has added to the Dollar's weakness," says Ted Scott, head of strategy at F&C Asset Management in London, speaking to FT Advisor.
"Conversely, this is another reason why gold has been strong at a time of improved investor sentiment."
Gold last week rose 1.2% vs. the US Dollar, but rose faster still against the Euro (1.8%), British Pound (1.5%), South African Rand (4.3%), Russian Rouble (1.3%) and Mexican Peso (2.4%).
Overall, BullionVault's Global Gold Index (GGI) – which prices gold against the top-10 world currencies weighted by GDP – last week rose by 1.3%.
"The market is not flooded with scraps despite high Gold Prices," said a physical Gold Dealer in Singapore to Reuters this morning.
"Demand from India is still quite good and that helps the premiums [charged in Asia compared to London's wholesale Spot Gold price].
"People are just unwilling to offer premiums cheaply."
"We've seen ongoing orders from the manufacturing side," adds Dick Poon, head of precious metals at German refiner Heraeus's Hong Kong office.
"There are not many gold scraps being returned to the market."
Culminating with Diwali on October 19th, the peak gold-buying season in India – final destination for more than one-ounce in ten sold worldwide so far this decade – is also gathering pace according to local press reports.
"Sales have got better since Navratras and we expect a better season ahead," says Bhiram Mishra, COO of Mehrasons Jewelers in New Delhi, to the Times of India.
"The wedding season is here and people do not compromise on Buying Gold. In fact, we are doing better business than last year."
Meantime in the "paper gold" market, latest data from US regulator the Commodity Futures Trading Commission (CFTC) – released after Friday's close – showed the sharpest drop in the number of open Gold Futures and options contracts in six months.
Shrinking by almost 8.5% to an open interest of 575,000 contracts in the week to last Tuesday, the volume of US gold derivatives fell as speculators cut their "net long" position by one contract in twenty from mid-September's record levels.
On the other side of the trade, commercial traders acting for miners, refineries and bullion banks cut their "net short" position faster still, down by 6.3% to the lowest level in a month as the Gold Price slipped by 2.5%.
"That argues against those who blindly contend that the commercial traders drove down the price," writes Gene Arensberg in his latest Got Gold Report.
"If the commercials had 'driven gold lower', wouldn't their net short positioning have increased?"
On the monetary policy front, meantime, "Excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability," the G7 nations meeting in Istanbul said in their joint communique this weekend, quoting word-for-word recent comments from European Central Bank chief Jean-Claude Trichet.
Once again, however, the finance and political leaders of the US, Japan, Germany, UK, France, Italy and Canada failed to name the US Dollar openly. Nor did they present any solution to the reserve currency's record price swings.
Pointing instead to the "first signs of recovery...sooner, stronger and more broad-based than many expected", US Treasury secretary Tim Geithner told reporters that "We need to avoid the mistakes made in past crises, when policymakers stepped on the brakes too soon.
"Planning for an eventual exit is the responsible and necessary thing to do, but we are not yet in the position where it would be prudent to begin to withdraw fiscal and monetary policy support."
The International Monetary Fund's governing council also said it saw "signs of early recovery" but asked world governments to maintain support "until a durable recovery is secured."
"Fiscal and monetary policies [in Asia] should continue to provide stimulus," said the IMF's director for Asia and the Pacific region Anoop Singh at a press conference.