247Bull.com Editor: Major currencies globally are openly and actively being debased. This ought to be the perfect recipe for higher gold prices. However, the desire of central bankers to create inflation is being countered by the deflation coming from private sector debt deleveraging. Sooner or later, unless we see successful and sustainable economic reform, the ongoing debasement of paper money will be reflected in a revaluation of gold. Right now the markets are giving policymakers the benefit of the doubt, however the moment that confidence in their abilities is lost, the mindset of investors is likely to change from that of ‘everything is fixed’ to ‘oh dear, we’ve just wasted trillions of dollars and nothing is fixed’.
Gold bullion traded for London delivery rose back through $1400 for the fifth day running on Wednesday morning, rising as the US Dollar slipped following weaker-than-expected jobs data.
Gold priced in the Euro ticked higher to €1075 per ounce, but was unchanged for the week so far in terms of Pounds Sterling below £914.
Silver prices rose back above $22.60 per ounce.
“If India wants gold, it will buy gold!”
“As a result of these measures,” agrees the Business Standard in an editorial, “gold demand and import will come down…[but] smuggling of the precious metalis likely to go up.”
Reuters says retail distributors in the world’s largest gold-consuming nation are “braced for higher premiums” over and above the international benchmark price for gold, typically quoted for London settlement.
“Supplies will get more scarce,” the newswire quotes Mayank Khemka of the Khemka Group. “There won’t be any [gold bullion] imports for the next two-three days until clarity comes.”
Speaking for the world’s leading gold-mining companies, “We recognize the short-term needs for such measures,” The Times of India quotes Aram Shishmanian, CEO of market development organization the World Gold Council.
“But we are proposing to work with [the Reserve Bank of India],” he explains, “so that in the long term gold could be monetized as a financial asset” rather than as a physical consumer commodity dragging on India’s trade balance.
April saw net imports of gold bullion to China – the world’s #2 consumer nation – fall 41% from March’s record high, new data showed today.
The net reading of 80 tonnes “is a surprise” said one dealer, but others cited a backlog of paperwork for gold importing banks who had already used their official quota in the first 3 months of the year.
The Shanghai Futures Exchange yesterday cut the amount of money gold and silver traders must keep on deposit against their positions from 7% to 4% by value.
For Western money managers, meantime, “Gold is a beneficiary of negative real interest rates,” says a research note from asset managers Blackrock, noting that May saw the sixth month running of outflows from exchange-traded gold trusts, knocking nearly one-third of gold ETF assets from the start of this year to $96 billion worldwide.
Even so, “Many invest in gold as a long-term holding due to its diversifying properties,” Blackrock adds. Because gold bullion “has historically shown little to no correlation with other major asset classes, including commodities.”
Commodity prices meantime ticked higher Wednesday morning, as did major government bonds, while the US Dollar slipped following news of weaker-than-expected growth in US hiring.
The private-sector ADP report – released ahead of Friday’s closely-watched official Non-Farm Payrolls report – missed forecasts of 165,000 net new jobs by a fifth.
Ten-year US Treasury yields fell to 2.12%, a 1-week low.
Two US Federal Reserve presidents said separately on Tuesday that reducing the central bank’s huge monetary stimulus is beginning to look “appropriate”.
“Gold continues to move sideways within a small range,” says the latest technical analysis from bullion bank Scotia Mocatta, pegging support at $1373 and resistance at $1422.
“Consolidation is ongoing,” agrees Axel Rudolph at Commerzbank, “but the overall trend remains bearish” with support pegged lower at $1338.
On the supply side, the world’s largest gold mine, the giant Grasberg mine in Indonesia, will be shut for 3 months as the government investigates a collapse which killed 28 miners in May.
Majority owned by Freeport-McMoRan Copper & Gold Inc, Grasberg had been scheduled to produce some 65 tonnes of gold this year – more than 2.4% of global output – after falling to 28 tonnes due to strikes in 2012.
The shutdown will likely bloock 125,000 tonnes of copper production too.
Meanwhile in Brussels on Wednesday, Latvia was welcomed by the European Commission as the 18th member of the Euro currency union, joining on New Year’s Day 2014.
Anti-Euro parties won more than 50% of the vote in last weekend’s elections in Latvian capital Riga, the BBC says.
Approving Latvia’s accession to the 330-million citizen Eurozone, the European Central Bank today warned of the “important risk to financial stability” posed by the reliance of “a significant part” of the country’s banking sector on foreign investors’ deposits.
Adrian Ash | BullionVault