Gold News

Gold "to Benefit" as Europe and UK Hold Rates Near Zero; "China Can't Buy Enough Gold" Say PBoC Insider

Gold Prices held steady Thursday morning in London, trading near $1090 and €735 per ounce for US and Eurozone investors – up 4.3% and 3.5% respectively for the week so far – as world stock markets slipped.

Crude oil crept back above $80 per barrel and the US Dollar slipped on the forex market as the European Central Bank kept its interest rates on hold at 1.0%.

The Bank of England also held UK base rates at their record low, down at 0.5% for the ninth month running, and expanded its quantitative easing "asset purchase program" by £25 billion.

That was only half as much as City forecasters guessed. The Pound rose sharply, nearing a 7-week high vs. the European currency.

"The Fed signaled conditions under which they will raise rates," notes Walter de Wet at Standard Bank of Wednesday's no-change decision from Washington, "[but] these factors remain favorable to low rates for some time to come.

"This should benefit precious metals...Despite current resistance [in Gold], we see the downside well protected and dips should still be bought."

Aiming to "boost asset prices and improve access to capital markets" with its extra quantitative easing, the Bank of England has already bought UK gilts equal to this year's new government debt – a record peacetime deficit worth 12% of GDP.

The British Pound leapt more than 1¢ on today's 14% extension of the scheme, however, hitting a 10-session high above $1.66.

Long-dated government gilts slipped, pulling market yields higher on Euro and US government debt.

The Gold Price in Sterling held within its tight 1% range of the last 48 hours, higher by 3.6% from Monday's start.

"The question now is who buys the rest of the IMF Gold?" writes Bart Melek at the $375 billion BMO Capital Markets in a note to clients.

Following India's surprise 200-tonne purchase announced on Tuesday, "We suspect it may be China, other Asian countries, Russia or even India again," says Melek.

"They hold relatively little gold relative to their very large foreign exchange reserves, and may want to diversify away from US Dollars."

"China's gold is much cheaper" than IMF Gold, however, notes Li Yang, a former member of the Chinese central bank's monetary policy committee, and now a senior researcher at the Chinese Academy of Social Sciences, speaking to Reuters.

The world No.1 producer since 2008, China is now also the world No.1 private gold consumer market.

"It's cheaper for us to Buy Gold from the Chinese market," agreed an un-named People's Bank official, "but it doesn't help diversify our huge foreign exchange reserves."

"Even if China bought half the world's annual Gold supply, it would only cost a few tens of billions of dollars, which is tiny compared to China's huge reserves.

"Even if it's sold at a market price, we should still buy," counters Xia Bin, head of a key Beijing think tank advising the State Council cabinet, making plain that his was a personal view.

"India's okay with it, why shouldn't we be? What's the use for so many dollars, whose purchasing power is weakening anyway? With so many foreign reserves in hand, I think China should buy, without doubt."

Back in the London gold market today, "The metal has come straight up from 1043 over the last three days," notes market-maker Scotia Mocatta.

"As we are reaching fresh record highs in price there is no historical price resistance."

Spying what it calls "fund related buying and some good option buying, propping up the market," Swiss refiners and dealers MKS says that "[Gold] investors are already beginning to price in the fears of inflation that have been hovering around the market for a while.

"With talk shifting to how to deal with the long-term repercussions of quantitative easing, it seems gold is gathering momentum to eventually move higher past the 1100 mark."

Iceland's central bank meantime cut its interest rates from 12% to 11% on Thursday morning, down from the record 18% hit when the Krona collapsed alongside the Scandinavian island's banking sector and credit rating in March.

Want to Buy Gold today? "If there's an easier way, I've yet to find it," says one BullionVault user...

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals