Gold News

Gold Dips to End London Unchanged; Bullion Grows "Scarce" Despite Threat to Asian Demand

Gold Prices pulled back as London closed Wednesday, bouncing off the overnight lows around $757.50 once again as New York began its afternoon session.

The PM Fix was earlier set at $762 per ounce in London, its highest level since the start of 1980.

Gold Priced in Euros traded down to €533.50 per ounce as the single currency ticked higher against the Dollar. The Euro rose above $1.4200 following much-weaker-than-expected US house-building stats, the worst in 14 years. The British Pound regained nearly a cent of the 1.5¢ it lost early Tuesday.

US inflation data said just ahead of the opening bell on Wall Street that consumer prices rose faster than expected in Sept. from August. The CPI was on target, however, if fuel and food costs are stripped out.

The rise in Sterling helped cap the Gold Price in British Pounds below £375 per ounce for the day, but for both UK and European investors wanting to Buy Gold Now, the price overnight had briefly touched yesterday's new 17-month highs at £376.50 and €540 respectively.

Looking at physical "offtake" from the Gold Market – currently driven by festive-season buying by Indian consumers – "there's definitely been some weakness in demand at these prices," says Philip Klapwijk, head of the GFMS consultancy in London.

Speaking to Bloomberg by phone from Chengdu, China, Klapwijk believes that "at $760 per ounce, the Gold Price will hit demand outside even the [traditionally price-sensitive] Asian markets."

According to Comex gold futures data, speculative traders reduced the size of their "long" positions to Buy Gold in the week-ending 9th Oct. But the market remains 77% bullish overall – and "should investors and shorter-term traders [now] engaged in heavy long positions decide to take some profits out of these markets, then Gold Prices could fall as quickly as they have risen," says the CPM consultancy in its latest Precious Metals Advisory.

"Such a sell-off would be expected to be short-lived, however, as other investors are likely to take any drop in prices as a buying opportunity."

Gold Prices for Japanese investors slid overnight from yesterday's new 23-year highs, with the Tocom's most-active gold futures contract dropping 1.7%.

The Japanese currency also fell, giving back one-half of Tuesday's sudden spike to two-week highs versus the Dollar. The Nikkei stock index dropped another 182 points to stand more than 2.1% lower for the week so far.

In India, stock market trading was temporarily suspended this morning after the Sensex slumped nearly 8% in just three minutes on news that the Securities and Exchange Board may restrict foreign investment in Indian equities.

The Indian stock market has gained more than 40% so far this year. Foreign investment now totals $17 billion since January.

The Sensex bounced once the market re-opened and the Indian finance minister called for calm. The Sensex ended the session just 1.7% lower, but the proposed changes to foreign investment law will cause a "a sizable moderation in portfolio inflows" according to a J.P.Morgan analyst in Mumbai.

"If this [threat to India's stock market] does persist," adds Michael Jansen, a colleague at J.P.Morgan in London, "you may have a bigger problem in terms of Indian demand for gold."

Base metals continued to slip, meantime, led down by copper and nickel. Lead prices hit a two-week low after making new all-time highs at the end of last week.

Crude oil prices also slipped ahead of US data showing stockpiles of crude oil rose in the week-ending last Friday. But for Western consumers, the recent surge in crude oil is only just beginning to impact prices at the pump.

Here in London, the cost of diesel has now broken above £1 per liter, equal to $7.68 per gallon. The Road Haulage Association said overnight that British truck operators face "appalling pressures" after government fuel duty rose by the equivalent of 15¢ per gallon at the start of this month.

Back in the oil futures market today, November contracts eased more than $1.20 from yesterday's record highs above $88 per barrel after the vice-president of Iraq told the CNN news service that he "got what he wanted" from a meeting with the Turkish government.

Turkey's parliament today approved a motion allowing Turkish troops to pursue Kurdish separatists across the border into northern Iraq, home to some of the biggest oil fields in the world's third-largest oil-producing state.

"If we don't see an escalation of the conflict between Turkey and the Kurds, we'll see a sharp decline of $5 or $6 in oil prices," reckons Hannes Loacker at Raiffeisen Zentralbank Oesterreich in Vienna, speaking to Bloomberg.

"The oil markets are tight, but not tight enough to justify $87 per barrel."

Thanks to the sharp rise in Gold Prices, the physical market for bullion is also looking tight – despite the apparent slowdown in demand from Asian jewelers.

"There are signs of gold scarcity in the London market for the first time in years," says John Reade at UBS. The exchange-traded funds such as StreetTracks GLD – which all vault gold in London – "continue to attract investors and this means that gold is bought and allocated" – so it is no longer available for lending.

Gold bullion holdings at the major exchange-traded gold funds have risen by nearly 840 tonnes in the last five weeks according to analysis by Macquarie First South in Johannesburg, around half the increase for all of 2007 to date.

Shareholders buying gold ETF stocks, however, do not actually own the metal. Instead, they merely "track" the physical Gold Market, losing 0.4% of their metal each year to cover storage and administration fees.

The metal bought by the trusts running these schemes effectively "hedges" their liability to investors, rather than giving shareholders any ownership of physical gold.

To Buy Gold outright today, owning physical gold bullion with full legal title – and paying as little as 0.12% per year to store it securely in your choice of New York, London or Zurich – go to BullionVault now...

Adrian Ash

Adrian Ash, BullionVault Gold News

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.

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.

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