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"Battered" Gold Drops Below $1700, US Speculative Positions Fall After "Severe Blow", But "Aggressive Monetary Policy" Makes Long Term Trend "Broadly Positive"
London Gold Market Report
from Ben Traynor
THE DOLLAR gold price fell back through $1700 an ounce as US markets opened on Monday, continuing its slide begun when Asian markets opened several hours earlier.
The silver price dropped to $33.63 per ounce – a 2.0% fall on last week's close – while stocks and commodities edged lower and US Treasury bond prices gained.
By Monday lunchtime in London, the gold price was 1.2% below where it closed on Friday.
"Gold's latest behavior has been rather volatile over the past week," says the latest commentary from Swiss precious metals refiner MKS, adding that gold last week was "battered by the economic news."
The gold price "continues to look vulnerable on the charts," MKS adds.
"Gold looks to have recovered from last week's technical dip," says a note out Monday from ANZ Ban, "but remains vulnerable to correction within a broadly positive longer term trend."
On the gold futures and options market, the net long difference between bullish and bearish contracts held by so-called speculative gold traders dropped 22% in the week ended last Tuesday, the latest figures from the US Commodity Futures Trading Commission show.
"As expected, net speculative length was dealt a severe blow," says Marc Ground, commodities strategist at Standard Bank.
"This was mostly the liquidation that occurred after market expectations of liquidity growth were undermined by Fed chairman Bernanke as he failed to mention further quantitative easing in his address to US lawmakers the previous week."
The Federal Reserve Open Market Committee is due to announce its latest monetary policy decision tomorrow, with some in the market wondering whether there will be a third round of quantitative easing.
"If there's no QE3, then there will be disappointed selling again," reckons Ronald Leung, director of Hong Kong-based Lee Cheong Gold Dealers.
Over in China, the world's second-biggest gold consumer in 2011, exports in February fell 23.6% from the previous month – while year-on-year growth slowed to 18.4% – according to figures published Saturday. The fall in exports contributed to a trade deficit of $31.5 billion, "the largest monthly deficit since at least 2000" according to the Wall Street Journal.
"It is still very much necessary that the policymakers in Beijing provide sufficient support for funding for investments in the coming period," reckons BNP Paribas economist Ken Peng.
During the last three months, the People's Bank of China has twice cut the reserve requirement ratio for banks, which dictates how much money they have to hold as reserves as a proportion of total assets.
"Theoretically speaking, there is much room for RRR cuts," PBOC governor Zhou Xiaochuan said Monday.
"But there are restraints, and we are paying particular attention to the possible impact on capital flows, especially in a time of economic globalization."
Zhou said last week that the Yuan should be allowed to fluctuate in a wider range against other currencies, a move seen by some analysts as a way of encouraging Chinese firms to get used to managing exchange rate risk.
After Saturday's export data however, the PBOC set the Yuan's midpoint against the Dollar 0.33% lower on Monday. The move represented the second-biggest one day fall for the Yuan since China set up its foreign exchange market in 1994, with the biggest being the Yuan's 0.36% fall in August 2010, newswire Reuters reports.
US lawmakers last year proposed a bill that would see tariffs imposed on Chinese imports into the US if China continued what some US politicians have called exchange rate manipulation.
In Japan meantime prime minister Yoshihiko Noda said today that the Yen remains "somewhat overvalued" despite falling around 8% against the Dollar since the start of February.
Japanese authorities intervened in the currency markets several times last year in an attempt to halt the appreciation of the Yen.
Japan's finance minister Jun Azumi today added that the authorities "will take firm action against excessive and speculative moves" by currency traders.
Here in Europe, the International Swaps and Derivatives Association confirmed Friday evening that the use of collective action clauses by the Greek government to force some investors to go along with a bond swap constitutes a credit event. An auction has been scheduled for March 19 to determine the recovery value of outstanding Greek debt, and thus determine how much credit default swaps should pay out.
Eurozone finance ministers meantime are due to sign off Greece's €130 billion second bailout when they meet today, enabling Greece to meet maturing bond payments next week. Finance ministers are also expected to discuss Spain, which last week said it will ignore its European Union deficit target for 2012.
Over in the US, the national average price for a gallon of gasoline rose above $3.80 on Monday, up from $3.77 last week and $3.51 a month back, according to motoring organization AAA.
The Organization of the Petroleum Exporting Countries (OPEC) said Friday that it is still exceeding its production target despite a fall in production from sanctions-hit Iran.
The value of all commodity assets under management rebounded in January to $366.8 billion – equivalent to over 2% of US GDP – according to a report by French investment bank Societe Generale.
The report adds that "aggressive monetary policy" should benefit gold and silver prices, news agency Bloomberg reports.
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
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