“Vicious” Gold Moves “Insignificant” for Long-Run Focus as US Bond Yields Jump, Asian Shortages Spread

Wholesale prices for physical gold rose Wednesday morning in London, hitting almost $1395 per ounce to gain 0.5% for the week so far.

Silver lagged gold, trading in line with last week’s finish at $22.42 per ounce, while world stock markets fell together with commodities and major government bond prices.

The US Dollar eased 0.5% on the currency markets, capping the price to buy gold below €1075 and £924 per ounce for Eurozone and UK investors respectively.

Tuesday’s expiry of US June gold futures contracts “made for some vicious price moves in both directions,” notes trading house Mitsui, pointing to the jump from $1375 to above $1400 as New York trade began.

“But ultimately the yellow metal remained firmly penned within its recent range,” the note adds, and the action was “far less significant for those with a longer focus.”

Yesterday also saw 10-year US Treasury yields jump as government bond prices fell, hitting a 14-month high above 2.2% and outpacing the latest Consumer Price Inflation reading by the widest margin since February 2011.

Ten-year UK gilt yields rose today above 2.0% for the first time in two months. They still lag UK inflation by 0.4% per year, however.

“We can see some Shanghai futures buying interest pushing the market higher,” Reuters quotes Peter Fung at Wing Fung dealers in Hong Kong, also noting the $25 premium to international spot prices for Chinese gold futures.

“Singapore is still facing a shortage,” said a local dealer to the newswire overnight, adding that customers wanting to buy gold must now wait until July for delivery.

Singapore premiums – over and above the international benchmark price, typically quoted for London delivery – have shot to a record $7 per ounce.

Some retail dealers are charging four times as much, however, asking 2% over spot prices for gold kilo bars in Singapore according to wire reports.

“Premiums [in India] have dropped to $5-$7 an ounce this week,” the Wall Street Journal quotes Ketan Shroff, director at Penta Gold in Mumbai.

That’s half the levels seen last week in India, the world’s heaviest gold-buying nation.

After imposing new restrictions on consumer loans raised using gold trust funds and gold coins on Monday, the Reserve Bank of India said Tuesday that it won’t seek to stop consumers being able to buy gold coins from commercial banks.

However, “Some more steps, if necessary, would have to be taken,” the finance minister P.Chidambaram said at the same conference yesterday in Pune, pointing again to the role of gold imports in India’s large trade deficit.

“I appeal to the people of India to contain their passion for gold,” Chidambaram said.

On the economic front meantime, both the Organization for Economic Co-Operation & Development and the International Monetary Fund today released new forecasts for 2013.

Washington’s IMF trimmed its prediction for China’s GDP growth from 8.0% to 7.75%.

The Paris-based OECD said the Eurozone – the world’s largest single-currency economy – will shrink by 0.6%.

“Protracted weakness,” says the think tank, “could evolve into stagnation with negative implications for the global economy.”

An economics book called Why We Should Leave the Euro has leapt to top the bestseller list in Portugal, which received a €78 billion bail-out from its Euro partners and the IMF in 2011.

The European Commission in Brussels is expected today to allow 3 of the region’s 5 largest economies to overshoot their budget deficit targets.

New data Wednesday morning showed the 330-million citizen Eurozone’s broad money supply growing 3.2% in April from a year earlier.

Private-sector loans, however, contracted by 0.9%.

Adrian Ash | BullionVault

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