Gold Bounces Back after Spanish Ratings Cut, Investors “Still Confident in Gold” but Fresh Buying “Not Seen on Monetary Policy Alone”

Spot market gold bullion prices climbed back above $1770 an ounce during Thursday morning’s London trading – still a few Dollars below where it started the week – as the Euro also recovered ground following falls overnight after Spain had its credit rating cut.

Stock markets edged higher this morning, as did most industrial commodities, while US Treasury bonds fell and German bund prices gained.

Silver bullion climbed as high as $34.33 an ounce, also slightly down on the week.

“We are watching support [for silver] at $33.37,” says bullion bank Scotia Mocatta’s latest technical analysis.

“A breach through that level…could indicate a double top in silver, which would target the low $31 level.”

The volume of gold bullion backing the world’s largest gold ETF, SPDR Gold Shares (GLD), held steady yesterday at an all-time high of 1340.5 tonnes.

Earlier this week, holdings of gold by all ETFs tracked by newswire Reuters hit a new record at 2333.7 tonnes.

“The continuously rising ETF holdings show that investors are still confident in gold in the longer term,” says Jinrui Futures analyst Chen Min in China, adding that last month’s US Federal Reserve decision to extend quantitative easing indefinitely “has put a floor under gold”.

The European Central Bank also announced open-ended bond buying last month, while the Bank of Japan extended its long running QE program.

“Additional monetary policy easing in the United States and other countries is no longer fresh news,” points out HSBC commodities analyst James Steel.

“We do not anticipate further significant buying of gold based on monetary policy accommodation alone.”

“We have seen easing policies  come from both Europe and the US in recent weeks,” adds a note from Ed Meir, analyst at commodities brokerage INTL FCStone, “but we have yet to see it coming from China, which in some  ways, is the last ‘hold-out’ and one that could provide the gold market another lift in the event that authorities signal  more monetary relaxation.”

“[Chinese policymakers] don’t seem to be rushing to pump growth up again,” reckons Paul Sheard, chief global economist at ratings agency Standard & Poor’s.

“I think they’re somewhat comfortable in the 7-8% zone [for GDP growth]. But, were the Chinese economy to show signs of dipping below this level, then I do think you would see the policymakers galvanized into action.”

“China is no longer in the mood to provide a massive stimulus [as it did in 2008],” agrees HSBC group chief economist Stephen King.

“China’s exports have succumbed to the downswing in world trade. Once the global economy’s savior, China has become its latest scalp.”

Gold bullion imports into China from Hong Kong, the primary conduit for Chinese gold imports, fell to 53.5 tonnes in August – 29% down on a month earlier and a 26% year-on-year drop – figures published by the Hong Kong Census and Statistics Department show.

“Increased prices have clearly left their mark on gold demand,” says today’s Commodities Daily note from Commerzbank.

“A further reason for the lower net import figures recently is likely to have been the higher level of domestic gold production, which in August totalled 41.4 tonnes according to the Chinese government.”

Here in Europe, Spain had its credit rating cut to one notch above junk last night by S&P, which downgraded Spain from BBB+ to BBB- while maintaining a negative outlook.

“The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance,” said an S&P statement.

“[There is a] lack of a clear direction in Eurozone policy…[and] the deepening economic recession is limiting the Spanish government’s policy options.”

Countries like Spain should be given more time to reduce their government deficits, International Monetary Fund chief Christine Lagarde said Thursday.

“That is what I have advocated for Portugal, this is what I have advocated for Spain, and this is what we are advocating for Greece,” Lagarde told reporters in Tokyo, where the IMF and World Bank are holding their annual meetings.

Lagarde added that Greece should be granted the additional two years prime minister Antonis Samaras is seeking to implement austerity measures.

Earlier this week, the IMF cut its growth forecast for the Euro area and projected a sharper 2013 contraction for Spain than previously forecast three months ago.

Gold mining workers on strike in South Africa have rejected the latest wage offer from employers, the national Union of Mineworkers has said.

“This was a final offer from the companies,” said NUM spokesman Lesiba Seshoka.

Ben Traynor | BullionVault

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