Gold News

Physical Gold Demand "Exceptionally Good", Security "Beats Paper" Even as Physical UK Gold Buyers Pay 75% Mark-Up

The price of Gold eased off a new two-week high Wednesday morning in London, slipping 1.0% from $1125 an ounce as world stock markets also erased early gains.

Crude oil held onto Tuesday's 3.8% rise as government bonds ticked lower, nudging interest rates up.

The US Dollar pushed the Euro back beneath $1.40.

"Physical Gold demand is exceptionally good," said a senior manager at Switzerland's MKS refinery to Bloomberg News this morning.

"Price levels below $1100 an ounce apparently attract buyers who consider this as a lucrative entry point," says Eugen Weinberg, senior analyst at Commerzbank.

"The recovery in physical Gold demand in emerging markets and the rebuilding of longs by the macro hedge funds leave gold well positioned to trade higher," adds HSBC bank's latest precious metals note to clients.

Recording the best London Gold Fix since Jan. 20th at $1118 an ounce today, the price of gold was little changed from yesterday morning for UK and Eurozone buyers, just shy of £700 and €800 an ounce respectively.

On the economic front Wednesday, the UK reported better-than-expected consumer confidence but worsening activity in the services sector.

Retail sales across the 350-million citizen Eurozone were flat in Dec. the EuroStat agency said, compared with Nov.

"Greece has adopted an ambitious programme to correct its fiscal imbalances and to reform its economy," said European economic & monetary affairs commissioner Joaquin Almunia today, endorsing Athens' proposals for cutting its budget deficit from 12.7% to 2.8% of GDP by 2012.

Greek government bond prices rose on the news, pushing the spread of 10-year yields over 10-year German Bunds down to 3.3 percentage points from Tuesday night's 3.4 points.

US analysts awaiting today's monthly ADP Payrolls report forecast it would show job losses of 34,000 for Jan.

Friday's official Non-Farm Payrolls data is expected to show a net jobs increase of 15,000 across the world's largest single economy.

"[Gold's] 1120 resistance level still stands in the way of further upside," says a note from Scotia Mocatta bank, pointing to a level highlighted by other analysts as the top of a falling trendline starting at the all-time high of $1226 an ounce, struck two months ago.

"[Technical] signals are still looking quite bullish" for gold, says Scotia's note, while "The downside in silver has been neutralized.

"However, silver lags Gold in being able to develop a viable uptrend."

Wednesday morning saw the price of silver rise and slip in line with gold after trading "uncharacteristically" on Tuesday as one dealer put it, failing to match, much less extend gold's 1.0% rise.

Meantime in the Gold Coin market, the US Mint said it sold 27.6 million ounces of bullion coins in fiscal-year 2009, earning record revenues of $1.7 billion – an increase of 78% from 2008.

"People are obviously looking at physical gold more than paper," says Numis Securities analyst Andy Davidson, speaking to Bloomberg.

"There's concern about monetary debasement, which is a big driver for gold. People are worried about other assets devaluing."

The volume of Gold Bullion held to back shares in the SPDR Gold Trust, the world's largest exchange-traded gold fund, was unchanged for the 11th day running on Tuesday, fund data said.

January saw gold holdings for the SPDR trust shrink by 2% to 1112 tonnes. The same month in 2009 saw the trust's holding swell over 8% to a then-record 843 tonnes.

The UK's Royal Mint more than doubled its production of Gold Coins in 2009, selling some 3.9 tonnes of the metal, according to data obtained by Bloomberg under Freedom of Information rules.

The Royal Mint's 2010 Sovereign Gold Coin costs the equivalent of £1230 per ounce, more than 75% above the metal's current spot market value.

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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.

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