Gold News

Gold Hits Two-Day High as India's Festive Buyers Shun Over-Priced Banks

Gold Prices hit a two-day high of $874 per ounce in thin trade Thursday morning in London, while world stock markets ticked lower and crude oil held just below yesterday's new record high of $123.93 per barrel.

Government bond prices rose, pushing the yields offered to new buyers lower.

"With all eyes on crude oil markets," notes Walter de Wet for Standard Bank today, "volumes in the precious metals market remain low.

But "look out for the ECB interest rate decision [and press conference at 08:30 EST] today. Although no rate cut is expected, a dovish tone at the policy statement could pave the way for further Euro weakness."

Gold and the Euro last week showed a daily correlation of 0.51, sharply down from the near-perfect 0.97 reached at the end of 2007.

Today the Gold Price in Euros rose to a seven-session high of €569.35 per ounce as the ECB kept its rates on hold at 4.0% and the single currency ticked up from a two-month low of $1.5285.

For British investors wanting to Buy Gold today, the price held in a tight range between £443 and £446 per ounce as the Bank of England voted to keep UK interest rates on hold at 5.0%

UK inflation has pushed up to a decade high in the last year; the Bank of England has cut its lending rate three times since December.

Analysts including Jonathan Loynes at Capital Economics now expect the Bank to cut rates to 4.0% by the end of the year.

"Our view is that [global] economic conditions are likely to deteriorate," said Dan Smith at Standard Chartered in London to Bloomberg this morning.

"Some money will come out of equities and go back into gold."

Today in India – where the two-day festival of Akshaya Thrithiya concludes on Thursday – gold prices ticked up to 11,800 Rupees per 10 grams as the Indian currency fell on the forex market.

"The rupee's volatility has kept gold traders from buying," said a private-bank Gold Dealer to Reuters. "There is not much buying in the wholesale segment, but the retail side is good."

"Early sales of gold on Akshaya Thrithiya were quite satisfactory," confirms Bhargav Vaidhya, a Gold Market analyst in Mumbai. "In fact, thanks to the current high prices, consumers did not buy all they had planned."

The World Gold Council's local office now expects gold sales during this week's festival – an auspicious time for Gold Investment on the Hindu calendar – to show a 15% increase from Akshaya Thrithiya '07.

"A modern-day Gold Investment at Akshaya Thritiya is probably more likely to involve a visit to the neighborhood bank or calling an investment advisor rather than a jewelry store," according to DNA Money. But this week "consumers appeared to prefer buying from zaveris [jewelers] rather than banks," says Vaidhya in Mumbai.

Indian Gold Buyers must pay a "marginal premium" if they Buy Gold from a bank, says K.V.S. Manian at Kotak Mahindra, justified by its warranted purity and tamper-proof packaging. But India's banks are "taking advantage of goodwill" reckons Rajeev Popley, head of the Popley jewelry and coin group.

"Banks sell their coins at a price far higher than the market price."

What's more, Indian banks will not re-purchase gold coins from their customers. "The regulator does not allow it," says Sonu Bhasin, senior vice-president of the wealth management division at Axis Bank.

And that forces Indian consumers who've bought gold at a premium from the banks to sell it to local jewelers at raw Gold Market prices.

(Why not cut out the middleman entirely? You can now Buy & Sell Gold at your own price using BullionVault's live online order board here...)

In the broader financial markets, meantime, Asian-Pacific equities fell 1.1% on Thursday, pulled down by banking and export stocks after Toyota blamed a 28% drop in its first-quarter profits on the strengthening Yen and lower US car sales.

European stocks slipped 0.4% ahead of the European Central Bank's interest-rate decision. US stock futures pointed lower.

"US stocks are in a bear-market rally," said George Soros, the multi-billionaire hedge fund manager, at a conference in Washington yesterday.

"Markets don't tend toward equilibrium, they actually go to excesses. House prices overshot on the upside, and they will overshoot on the way down.

"The United States is at the very beginning of an uptrend in foreclosures. The effect of that is only beginning to be felt. There is a certain time lag."

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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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