Traders Own

Gold drifted to a one-week low below $1380 an ounce Tuesday morning, as silver dipped below $21.80 an ounce, with stocks and commodities broadly flat on the day ahead of tomorrow's US Federal Reserve decision, with analysts speculating on whether the Fed will give details of when and how it might slow down its quantitative easing program.

 

"The outlook for the gold price remains negative from a technical perspective," says Karen Jones, head of FICC technical analysis at Commerzbank.

 

"Following the mid-April plunge, the market has consolidated tightly sideways in a converging range. We are viewing this as a potential symmetrical triangle. A close below $1352 will complete the pattern and trigger another leg lower we suspect."

 

"We believe that the dramatic gold sell-off in April," adds a note from Societe Generale, "combined with the prospect of the Fed starting to taper its QE program before year-end, has resulted in a paradigm shift in many investors' attitude towards gold. This is likely to result in continued large-scale gold ETF selling this year and next."

 

The SPDR Gold Trust (ticker: GLD), the world's largest gold exchange traded fund (ETF), has seen outflows this year amounting to a quarter of the gold it held to back its shares at the start of January.

 

In Washington, the Federal Open Market Committee begins its latest two-day monetary policy meeting today, with a decision due tomorrow.

 

"[There is] much speculation as to whether [the FOMC] will detail an exit strategy [from QE]," says a note from Dutch bank ING.

 

"While there are views that the Fed will want to see bond yields lower, or certainly highlight that policy rates will not be raised for a significant period, we see merit in the view that transparency is the best policy choice – and it is time to more formally outline the normalization process."

 

ING also argues that Fed policy uncertainty "has seen soaring volatility destroy the carry trade", whereby investors could borrow cheaply in Dollars to invest in emerging market assets.

 

Fed chairman Ben Bernanke meantime has stayed in his job "longer than he wanted" and has "done an outstanding job", according to US president Barack Obama, speaking in an interview broadcast Monday.

 

Over in the UK, consumer price inflation rose to 2.7% last month, up from 2.4% a month earlier, figures published Tuesday show. Mervyn King steps down as Bank of England governor at the end of this month. For the 120 months of his tenure, inflation has been above the Bank's target in 84 of them.

 

Over in India, the world's biggest gold buying nation, the authorities "are not at the end of our wits as far as gold imports are concerned," economic affairs secretary Arvind Mayaram said Monday.

 

"If required, there are other measures that can be taken and they will be considered at the appropriate time."

 

India has raised import duties on gold twice this year – taking them to 8% - and has also restricted imports of gold on a credit basis to only those who will re-export it. Gold and silver was India's second biggest import item last year and has been cited as a major contributor to the country's current account deficit.

 

Over in China, the world's largest stock market-listed jewelry chain Chow Tai Fook today reported a 13% drop in profits for the year to March, a filing with Hong Kong's stock exchange shows. The company cited "declining confidence of domestic consumers" as a factor behind the fall in profits.

 

Sales of silver bullion American Eagle coins by the US Mint meantime are set to record their best first-half-of-a year since at least 1986 – the year from which US Mint sales data start – with over 24 million ounces sold so far this year.

 

CME Group's new 1000 ounce silver futures contract saw 25 lots of the September contract traded in its first day of trading yesterday, with 5 lots of the December contract traded. By comparison, volume for the standard 5000 contract was 11,028.

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

The US dollar gold price drifted back below $1390 an ounce Monday morning in London, but remained well within its trading range of the last few weeks, as European stock markets edged higher, with analysts citing Wednesday's Federal Open Market Committee decision on US monetary policy as "the big driver" for this week.

 

"On the whole, the market hopes for insightful comments in the course of the next Fed policy meeting...which will affect gold's further development as well," says a note from bullion refiner Heraeus.

 

Any so-called 'tapering' of the Fed's $85-billion-a-month quantitative easing program "would be bearish for gold and the other precious metals" says Jonathan Butler, precious metals strategist at Mitsubishi in London.

 

On the New York Comex, the so-called speculative net long position in gold futures and options – calculated as the number of 'bullish' long minus 'bearish' short contracts held by traders classed as speculators – fell in the week ended last Tuesday, according to Friday's weekly Commitment of Traders report from the Commodity Futures Trading Commission.

 

Silver meantime edged back below $22 an ounce, as other industrial commodities were broadly flat on the day, while on the currency markets the Euro held steady against the Dollar above $1.33.

 

For silver futures, the number of short contracts held by those in the Managed Money category – which includes hedge funds and other money managers – was slightly larger than the number of long contracts, CFTC data show. The last weekly reports to show money managers betting on aggregate against the silver price were published in April – prior to that no managed money net short silver position had been published since September 2007.

 

"Silver has been trying in vain to regain the $22 per troy ounce mark...[but] the high level of pessimism among money managers is putting pressure on the price," says today's commodities report from Commerzbank.

 

The world's biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) saw the volume of bullion held to back its shares hold steady at 1003.5 tonnes Friday, though it ended last week down 3.6 tonnes. The GLD has seen outflows amounting to one quarter of the gold it held at the start of this year.

 

Despite this, the GLD's biggest holder, hedge fund Paulson & Co., says it has no intention of closing its Gold Fund, news agency Bloomberg reports, citing a letter to investors it has obtained.

 

"While gold continues to pivot between negative investment appetite, which has slowed, and softer physical demand, this week the market focus will shift to the FOMC meeting and press conference," a note from Barclays says.

 

"The markets are a little bit fatigued at the moment," agrees Victor Thianpiriya, commodities analyst at ANZ. 

 

"They are still looking for direction from the Fed meeting. That's clearly the big driver this week."

 

Over in China meantime, Huaan Asset management, one of two physically-backed gold ETF providers to be approved by the China Securities Regulatory Commission, has said it aims to attract $400 million of initial funding – equivalent to around 9 tonnes at current prices – though no launch date has yet been announced.

 

"Gold hasn't lost its appeal as a store of value in China," says fund manager Xu Yiyi, who will run the Huaan ETF.

 

"Investors here usually like to buy on dips, so a decline in the bullion prices this year should work in our favor."

 

Over in India, the only country with stronger gold demand than China last year, gold and silver imports amounted to $8.4 billion last month, a 90% year-on-year rise, though this was down from April's 138% annual rise, a trade ministry official said Monday. India's trade deficit meantime widened from $17.8 billion in April to $20.1 billion last month.

 

Gold and silver prices fell sharply in April, prompting a spike in physical gold demand, while Indian importers were also reported last month to be looking to get ahead of new regulations. Earlier this month, Indian authorities raised the import duty on gold to 8%, the second hike this year, and also curbed imports on a consignment basis.

 

In Northern Ireland meantime the conflict in Syria and tax avoidance are expected to be two of the major topics discussed by world leaders meeting for the G8 summit.

 

In Iran, outgoing president Mahmoud Ahmadinejad has been summoned to appear before a criminal court, the Washington Post reports, following the election Sunday of his successor Hasan Rohwani, a reputed moderate who won 51% of the vote.

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

Wholesale gold bullion prices continued to hover near $1380 an ounce Friday, while silver traded either side of $21.80 an ounce and stocks and commodities ticked higher, regaining some of the ground lost this week.

 

Heading into the weekend, gold was trading almost exactly where it started the week by Friday lunchtime in London, with silver also little changed.

 

"It has been a week of nothingness and I doubt today will be a lot different," says this morning's bullion note from brokerage Marex Spectron.

 

"Continue to watch the Dollar for direction and with a few [economic] figures, albeit not particularly big ones, out this afternoon, that should be good for a few silly Friday afternoon moves."

 

A survey of 36 gold market analysts by news agency Bloomberg found half of them expect gold prices to fall next week, with 14 saying they expect gold to go up and four saying they were neutral.

 

"Sentiment is very bleak," says VTB Capital commodity strategist Andrey Kryuchenkov.

 

"Investors are basically on the sidelines. They don't want to do anything and are still spooked."

 

"The downtrend that we see in the gold price is likely to continue," adds Dominic Schnider, head of commodity research at UBS Wealth Management Research.

 

The world's biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) meantime saw outflows of 6.3 tonnes yesterday, taking total bullion holdings to back its shares to its lowest level since February 2009.

 

US Federal Reserve policymakers meeting next week will seek to convince investors that they will move slowly in unwinding the Fed's stimulus measures such as its quantitative easing bond-buying program and record low interest rates, according to the Wall Street Journal's Jon Hilsenrath, dubbed 'Fedwire' by some fellow journalists owing to his perceived closeness to sources at the central bank.

 

"The chatter about pulling back the bond program has pushed up a wide range of interest rates and appears to have investors second-guessing the Fed’s broader commitment to keeping rates low," Hilsenrath writes.

 

"This is exactly what the Fed doesn't want."

 

Hilsenrath predicts that Fed chair Ben Bernanke will reiterate his message that there will be a "considerable" lag between the end of QE and the raising of benchmark interest rates.

 

"We are not sure if the two stances are mutually exclusive," says INTL FCStone metals analyst Ed Meir.

 

"Even if the Fed pares its buying program on the long[er term] end, there will be pressure on short-term rates to rise as well, meaning that the Fed could easily get sucked into intervening once again."

 

Over in China, the world's second-biggest gold buying nation, the government failed to sell all its bonds at an auction Friday, the first time this has happened in nearly two years.

 

"Tight liquidity is the main cause for the ministry's failure to complete the bond sale today," a senior trader at China Gunagfa Bank tells the Wall Street Journal.

 

"The high funding cost in the interbank market has made such investments even less popular."

 

"If liquidity is so tight that it is even difficult for government to raise funds, it'll be even more difficult for local governments and highly leveraged companies," adds Nomura economist Zhang Zhiwei.

 

China's central bank, the People's Bank of China, has refrained from large-scale injections of cash into the markets in recent weeks, a move that it has used at times of market stress in the past in order to ease liquidity constraints. 

 

"Now the market believes the PBOC is unlikely to change its recent hardline stance," one senior trader at a Chinese state-owned bank tells newswire Reuters, "at least for the third quarter."

 

The United States meantime has said it will give military aid to rebels in Syria and is considering enforcing a no-fly zone, after US intelligence confirmed to the Obama administration that Syrian government forces have used chemical weapons

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

Gold prices rose as high as $1394 an ounce during Wednesday's Asian trading, before easing back by lunchtime in London, as European stock markets also fell, following selloffs in the US and Asia.

Silver dropped back below $21.90 an ounce after briefly touching $22, while other commodities were also down on the day.

"The trend is still bearish [for gold and silver]," says technical analysts at Scotia Mocatta.
 

Japan's Nikkei 225 fell 6.4% Thursday, taking the index down to more than 20% below last month's five-year high, and thus fulfilling a common definition for a bear market. Thursday's fall comes two days after the Bank of Japan decided not to announce any additional stimulus measures at its policy meeting.

"There's a global selloff in risk assets," says Nader Naeimi, head of dynamic asset allocation at AMP Capital Investors in Sydney.

"Short term there was froth and that needed to come out, especially in Japan."

Emerging market stock indices have also been hit in recent weeks, as have emerging market bonds

"Safe assets are not entirely safe anymore," says Jeffrey Shen, head of emerging markets at the world's biggest asset manager BlackRock.

"There's nowhere to run and nowhere to hide," agrees Jack Deino, senior money manager who overseas emerging market assets at Invesco in New York.

"There's been just a lot of money out there looking for yield. Part of the selloff is attributable to the [potential] pulling back of [Federal Reserve quantitative easing], and you can't do anything about that."

The Dollar meantime has lost ground against major currencies since the start of June. The Euro has rallied to touch a four-month high above $1.33 this morning, nearly 3% up on the month. The Pound is up 3.1% on the month at just below $1.57, while the Dollar has also lost ground against the Yen, falling to ¥94 to the Dollar this morning, down from last month's five-year high of ¥103.

The Dollar's depreciation in recent weeks has broadly coincided with falls in global stock markets, with the Dollar having strengthened during much of May as stocks also gained. The 30-day correlation between the US Dollar index and the S&P 500 rose to its highest level since October 2008 at the end of last month, Bloomberg reports, arguing that this is "a sign that traders are gaining confidence in the sustainability of the US recovery".

"The way the Dollar is trading relative to risk is totally different [to its behavior in recent years]...the whole nature of the Dollar as a funding currency is breaking down," says Jen Nordvig, global head of foreign exchange strategy at Nomura Securities in New York, referring to a phenomenon whereby traders have taken advantage of low US interest rates to borrow in Dollars to buy high yielding assets elsewhere.

Over in India, traditionally the world's biggest gold buying nation, imports of gold have "come down significantly" since the government raised the import duty to 8% last Wednesday, according to Bhaskar Bhat, managing director at the country's biggest jeweler Titan Industries, whose shares are down nearly 25% since the hike was announced.

"Gold imports have sharply come down," finance minister P Chidambaram told reporters Thursday.

"Net gold imports averaged $135 million a day in first 13 business day in May till May 20. However, in the subsequent 14 business days, it averaged only $36 million...I would be happy if they come down even further."

When asked if the government is planning any further duty hikes however Chidambaram replied that he does not want to become too unpopular.

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

Gold prices hovered just below $1380 an ounce Wednesday morning in London, with silver trading around $21.80, after the metals failed to break through $1380 and $22 respectively.

European stock markets ticked higher by lunchtime – with the exception of Germany's DAX – regaining some of yesterday's losses, which were followed by sell offs in the US and Asia.

Commodities ticked higher this morning while US Treasury bond prices fell ahead of an auction of 10-year debt later today.

"The gold price is unable to recover despite a weaker US Dollar and falling equity markets," says this morning commodities note from Commerzbank.

"The dominant subject on the gold market continues to be the possibility of a premature withdrawal of bond purchases by the US Federal Reserve...in our view, the figures available so far do not constitute any reason to scale back QE3 in the near future."

"There's a tug of war between investors putting money into gold and taking it out," adds Bernard Sin, head of currency and metal trading at Swiss refiner MKS, who also cited concerns among investors "worried about is if there's no more quantitative easing".

"With the Chinese out [on holiday] until Thursday," adds a note from ANZ, "the [gold] market is lacking a key stabilizing factor."

Since falling sharply in April, gold has swung either side of $1400 an ounce, with the gold price falling as low as $1337 and as high as $1478. Silver has also oscillated, while stock markets have retreated after hitting multi-year, or in some cases record, highs last month, with Japan's Nikkei especially hard hit.

"We think the recent volatility can be mostly traced to [Fed] Chairman Bernanke's rather unconvincing testimony in front of Congress a few weeks ago when he failed to clarify exactly when the Federal Reserve's bond buying program will be pared back," says a note from INTL FCStone metals analyst Ed Meir.

"Markets have been on edge ever since, with the global bond market in particular getting hammered."

An auction of 10-year US Treasury bonds later today is set to see benchmark yields above the inflation rate for the first time in 18 months, the Financial Times reports.

The market yield on 10-year Treasuries has risen from 1.6% at the start of last month to nearly 2.3% yesterday. Treasury Inflation Protected Securities (Tips), the price of which is linked to inflation, have also seen yields rise sharply in recent weeks. Bond yields move inversely to bond prices, with rising yields indicating investor selling.

"We have known for some time that Tips were overvalued, and the reversal has happened very quickly," James Evans, senior vice president at Brown Brothers Harriman, tells the FT.

"Rightly or wrongly, the bond market has pulled forward the end of QE and rate hikes coming as early as 2014. It does seem premature."

"The bond market seems to be missing the point that the Fed's policy of tapering [i.e. slowing the pace of QE asset purchases] depends on the tone of economic data," adds Barclays interest rate strategist Michael Pond.

"The market has moved from pricing in less bond buying [by the Fed] to a full-on tightening cycle and we believe that is a different story than what the Fed is trying to communicate."

"Recent weeks suggest that transparency [from the Fed] doesn't mean clarity," says Jim O'Neill, former chairman at Goldman Sachs Asset Management, in a column for Bloomberg View.

"The Fed can talk about 'tapering' QE all it likes; it can't change the basic laws of economics and valuation. A rise in the benchmark yield to 4% would represent normality even if inflation expectations stayed well controlled."

"While it might be easier to detail the 'deserved' casualties of the last month, or more, finding the undeserved casualties might not be quite so obvious," says this morning's note from the currencies team at Standard Bank.

"In our view these are assets where the selling has been more a function of position unwinding than any significant change in the fundamentals that underlie the market."

India's government does not see the need for any further measures to restrict gold imports, according to the country's economic affairs secretary Arvind Mayaram.

India, the world's biggest gold buying nation, raised import duties on gold to 8% last week, and has imposed restrictions on importing on consignment.

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

Spot Gold fell to three week lows below $1370 an ounce Tuesday, as stocks and commodities also fell amid ongoing speculation over when the US Federal Reserve might begin reducing the size of its quantitative easing program.

"Gold remains bearish while trading below the $1424 current June high," reckons Commerzbank senior technical analyst Axel Rudolph.

Gold exchange traded funds tracked by Bloomberg saw their gold bullion holdings fall by 6.1 tonnes yesterday, although the world's largest gold E.T.F. SPDR Gold Trust (ticker GLD) added metal for only the sixth day this year, raising its holdings by 2.7 tonnes to 1009.8 tonnes.

Silver meantime dropped back below $21.60 an ounce, falling towards three-week lo0ws touched yesterday.

Major European stock markets were down nearly 1.5% by Tuesday, after losses in Asia that followed the Bank of Japan's decision to leave its QE program unchanged.

"Upbeat sentiment over the US economic outlook continues to feed concerns of increasing US yields and an easing pace to [quantitative easing]," says VTB Capital analyst Andrey Kryuchenkov.

"Volumes in Asia will be subdued due to holidays in China," he adds, referring to tomorrow's Dragon Boat Festival.

Ratings agency Standard & Poor's raised its outlook for its AA+ US credit rating from 'negative' to 'stable' Monday.

"We do not see material risks to our favorable view of the flexibility and efficacy of US monetary policy," said a statement from S&P.

A stable outlook implies the chance of a downgrade in the rating is less than one-in-three.

"The last time the rating agency moved to downgrade US credit in August of 2011, the markets were sent into a tizzy with equities plunging and gold soaring to a record high of $1920 an ounce a month later," says a note from Ed Meir, metals analyst at brokerage INTL FCStone.

"However, this time around, the move by S&P did not cause much of a stir, as investors seemed to be more focused on erratic growth patterns evident across most industrialized economies, coupled with growing uncertainties with respect to what the Federal Reserve is going to do with regard to its stimulus program."

So-called 'Fed tapering' – the potential reduction in the size of the Fed's asset purchase from the current $85 billion a month – "is a big issue" former World Bank president Robert Zoellick said Tuesday.

"The question," said Zoellick, "will be, as the Fed eventually moves away from the monetary easing policies, what will be the effect of [withdrawing]the wall of money that's moved around the world?"

"[US] Labor market conditions have improved since last summer, suggesting the [Federal Open Market] Committee could slow the pace of purchases," James Bullard, president of Federal Reserve Bank of St Louis, which is not an FOMC member this year, said Monday.

"But surprisingly low inflation readings may mean the Committee can maintain its aggressive program over a longer time frame."

The Bank of Japan meantime left its main policy interest rate on hold at 0.1% Tuesday, while reiterating its quantitative easing commitment to grow the monetary base by an annual up to 70 trillion Yen ($720 billion).

UK industrial production meantime fell by 0.6% in the year to April, according to official figures published this morning, while manufacturing production, a subset of industrial production, down 0.5% over the same period.

Over in Europe, Germany's Constitutional Court today began hearing testimony on the European Central Bank's Outright Monetary Transactions program, by which the ECB has pledged to buy the debt of distressed sovereigns on the secondary market to mitigate borrowing costs.

Bundesbank chief Jens Weidmann, who has publicly criticized OMT, is expected to testify at the hearing, which has been added to an existing case before the Court over whether the European Stability Mechanism rescue fund breaches Germany's constitution.

Weidmann's fellow German Joerg Asmussen, who sits on the ECB's Executive Board, is also expected to appear, as is finance minister Wolfgang Schaeuble

Ben Traynor

BullionVault

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it

The Gold price rallied from a 1-week low at $1376 per ounce Monday morning in London, edging back up to $1383 as world stock markets rose.

Silver fell within 20¢ of mid-May's 30-month low, before rallying to $21.80 per ounce.

Commodity prices fell after weaker-than-expected Chinese industrial data. US Treasury bonds also slipped in price once again, nudging interest rates on 10-year debt up to 2.17%.

The gold price "conclusively broke back down through $1400 and stayed there" following Friday's release of US Non-Farm Payrolls data for May, says the latest daily note from brokers Marex Spectron.

But "the market is well ahead of itself in thinking the Fed will soon pare back on their stimulus," reckons Danske Bank's head of fixed-income trading Soeren Moerch, pointing to the slight uptick in the US jobless rate shown in Friday's official data.

Now at 7.6%, the unemployment rate is well above the 6.5% level previously named by US Federal Reserve chairman Ben Bernanke as key to any review of target interest rates.

"The latest employment news," says one gold price analyst, "supports our view that the [US Federal Reserve's] asset purchase programme will not start to 'taper' until the latter part of this year."

But Fed officials "are likely to signal at their June policy meeting that they're on track to begin pulling back their $85-billion-a-month bond-buying program," writes the Wall Street Journal's Jon Hilsenrath – dubbed "Fed wire" for his apparent connections to the US central bank.

"The recent recovery [in the gold price] is over," Bloomberg today quotes Richard Adcock, technical strategist at London bullion market-maker UBS.

"The next leg of the bear trend is to be seen down to the long-term 50% retracement point at $1303, which we would set as our objective."

Other analysts point to a trading range with either $1360 or $1375 at the bottom, with a move above $1420 needed "in order to escape the downward trend" according to German refining group Heraeus in a note.

Even before Friday's jobs data, "News out of India had already weighed on gold," says Heraeus.

Last week's import duty rise from 6% to 8% for gold going into India – the world's No.1 gold-buying nation – in will cut foreign-currency outflows and so help reduce the country's current account deficit, spokesmen for the Finance Ministry said at the weekend.

"The prospect of lower inflation and [lower] gold imports [is] good news for the Rupee," agrees Singapore fund manager Samir Arora of Helios Capital.

The Indian Rupee today fell to new all-time lows at worse than 58 per Dollar.

"I think this is panic in the market which is unwarranted," economic affairs secretary Arvind Mayaram told journalists Monday, pointing to concerns that tighter US policy would hurt investment flows to India.

"[The Fed] have now more than clarified that this [tapering of QE] is not imminent. Neither is it something which will happen quickly."

"What's happening today is not India-specific," says J.P.Morgan's chief India economist, Sajjid Chinoy, quoted by the Financial Times.

"Emerging markets are bleeding [money] across the board."

Speculative traders in US futures and options meantime grew their overall bullishness on gold in the week-ending last Tuesday, latest data from regulator the CFTC show – the first such rise in two months.

The so-called "net long" of bullish minus bearish bets held by non-industry players rose by 13% to the equivalent of 204 tonnes – only the 7th week-on-week rise out of 23 weeks so far in 2013.

Compared to New Year, however, the total net long remained below one-third the size. It was less than one-fifth the record levels of summer 2011.

"Silver [positioning] followed the recovery in gold," says the weekly analysis from Standard Bank in London.

"Unlike for gold, it was an addition to speculative longs that drove the overall improvement...avoiding a push into negative territory which had seemed imminent."

(c) BullionVault 2012

Last Week……..

…...... the FTSE 100 dropped -2.6% to 6,411 and on Wednesday alone it fell -2.12%. The FTSE 250 fell -2.4% with the Aim All Share at 719 was -2.5 lower. Markets were heading even lower until US Jobless claims grew by less than expected giving an Unemployment rate of 7.6%. UK economic news was positive with UK Manufacturing PMI at a 14 month high, UK Construction is growing again and even Eurozone Manufacturing is declining at the slowest pace for 15 months. Investors were perhaps depressed about the consequences of the Fed reducing its liquidity stimulus policy.

 

....This Week

………..on Tuesday Industrial and Manufacturing Production is reported followed on Wednesday by Unemployment figures. In the US there is Retail Sales and Consumer Confidence  reports on Thursday. It is likely that Chinese Industrial Production and Retail Sales will have a significant influence on sentiment. We expect markets to end the week higher.

 

Pause for Thought..

“The euro-debt crisis will strengthen as we all have instruments for stability, solidarity and an improvement in economic governance. The Euro crisis is over.”   French President Francois Hollande

  

Director Dealing..

The rules covering Directors Dealing makes this a more useful as a medium term indicator.

  

Buys:

Aviation Agg.      1.3m @60p

Breedon Ag         600k @27.5p

Centaur Hold       100m @ 33p

Cyan Hold.           5m @0.6p

Manx Fin.          321k @8p

Renold             105k @23.75p

Snoozebox         2.8m @24p

Sells:

Breedon Ag.       800k @28p

Company Reports:

Sanderson Group (SND)

£22.78m @52p

Growth yielding profits

Interims to the end of March showed this software and IT services business had increased operating profits 13% to £0.91m from £0.8m while revenue improved 3.6% to £6.37m. The PBT was £0.8m compared with around £0.2m,when the profit of a discontinued business is taken-out and the dividend was increased by 30%. Sanderson provide software and IT solutions specialising in the multi-channel retail and manufacturing markets. The solutions are proprietary software integrated, when appropriate with market leading products  and are supported and developed to offer 'value for money' and tangible business benefits such as increased efficiencies and cost savings.  There are pre-contracted recurring revenues of £3.96m or 62% of sales generated from the long-term customer relationships.   Sanderson continue to invest in development with an emphasis on further developing the range and scope of solutions for online sales and ecommerce businesses as well as a range of  supportive mobile solutions.  Selective acquisition opportunities will also be made to augment organic growth and a number of small opportunities are being considered. Profits for the year-end September are forecast at £2.1m for a prospective P/E of 13x while yielding over 3%.

Financials:

There is positive cash flow and there is net cash of £4.5m or 10p a share.

 

Silverdell (SID)

£44.6m @14.25p

Growth in Muck

Decommissioning and remediation services provider Silverdell reported strong growth in its interim revenues but this was mainly due to a full contribution from the EDS acquisition, which made no contribution in the corresponding period. Revenues doubled to £63.9m in the six months to March 2013. Organic growth was 10.5%. Margins have been hit by a greater proportion of cost-plus contracts and all of the profit growth came from EDS thanks to large decommissioning contracts in Canada and Australia. Pre-tax profit still trebled to £3.3m thanks to cost savings. Earnings per share doubled to 0.8p a share. The inclusion of EDS means that the power generation market dominates revenues. The order book is worth £238m and £66m of this is due to be delivered in the second half.  The EDS acquisition has made the business more international so less UK dependent. Profits for the September 2013 year-end are forecast at £9.6m for an EPS of 2p giving a prospective P/E of just over 7x while yielding 2%.

Finance:

Net debt is £15.8mbut include finance leasing of £8m and should fall to £12.1m by the end of September.

 

Mediwatch (MDW)

£3.7m @2.63p

Over Engineered:

Mediwatch’s interim to April showed operating profit had improved to £161k from £78K despite a 3% fall in revenue to £4.9m, the PBT was £121k. The contributory positive factors are the restructuring of UK sales, a new distribution agreement in the US and product launches. For over 10 years Mediwatch has developed faster, simpler and less invasive diagnostic products for people with a variety of urological conditions and have a range of medical equipment for the diagnosis of these urological disorders. There are number of recent product launches such as the New Clinic+ Urodynamics system, NANO Portable UDX system, Mediwatch Procedure Couch and  the Venus Pelvic Floor device.  A good year to October 2013 can be anticipated so assuming a PBT of £0.3m the prospective P/E would be 13.5x. It maybe that Mediwatch are better at developing products than sustainably increasing its global sales, which could leave them open to corporate activity.  In April the CEO lifted his stake to 17.3% after buying 100,000 shares at 2.5p

Financials:

The company was not cash flow positive at the interims as stocks were built-up and net debt was £0.87 ad the NAV is £6.1m.

 

@UK (ATUK)

£6.16m @7.25p

Room for Significant Improvement:

Ecommerce software supplier @UK have reported lower turnover and increased losses for the December 2012 year end but the current year starts with some contract wins and a strong pipeline of potential projects. A partnership agreement with Visa will provide a base for international expansion. In 2012, revenues fell 6% to £2.22m and the loss increased from £177k to £850k. There were additional costs for newly opened subsidiaries in Australia and India. Both these businesses have moved into profit. A US office has been opened this year. The fall in revenues was down to a lower contribution from the company formations business but the growth in the ecommerce side was also disappointing and revenues were only 7% higher at £1.18m. There are currently proposals for the UK worth £8.9m although not all of these will be converted into revenues. The partnership with Visa will help @UK to win additional international work. Some delayed contracts have already come to fruition this year. 

Financials:

Profits are forecasts at £200k on revenues of £3m for the Year-end December 2013 for a prospective P/E of 24x.

Gold and silver prices whipped sharply Friday lunchtime in London, as new US jobs data matched analyst forecasts with a 175,000 rise in Non-Farm Payrolls for May and a slight rise in the jobless rate to 7.6%.

Having touched 1-week highs above $1419 per ounce on Thursday, gold fell back through $1400 Friday as European stock markets erased earlier losses.

Silver lost and then regained 30¢ per ounce before falling again through $22.40, also near this week's lowest level.

"The market [had] the feeling that it wants to go higher," said one broker earlier Friday.

"While the technical downtrend is still in place," says bullion market-maker Scotia Mocatta in a technical note, "the trend is weakening as gold slowly grinds higher."

With gold still headed for a slight weekly gain, the 33 analysts, traders and retailers surveyed each week by Bloomberg's commodities team are "more bullish" than any time since March 22 – three weeks before the worst crash in gold prices in 30 years – the newswire reports.

Nineteen respondents expect gold prices to rise next week, against 8 bears and 6 neutral.

In the market, however, the number of hedge funds worldwide investing in gold fell from 310 to 290 between December and May, reckons EurekaHedge Pte Ltd., a Singapore-based consultancy, quoted by Bloomberg.

Latest data from US regulator the CFTC said speculative traders held the greatest number of bearish contracts on gold futures on record last week. Accounting for bullish bets, that move cut their net position as a group to a 5-year low equal to 171 tonnes.

Data for the week-ending Tuesday 4 June will be released after US markets close today.

Ahead of Friday's jobs report, a new research paper from the Chicago Fed said Thursday that the US economy needs to add 80,000 new jobs per month to keep the unemployment rate steady.

"It's time that we begin to gradually unwind [QE and zero rates]," said Philadelphia Federal Reserve president Charles Plosser – a voting member of the Fed's policy committee at alternate meetings in this year – on Thursday.

But markets have "over-reacted" to talk of tapering the Fed's $85 billion in monthly QE, he said.

"The markets seem to take this very seriously at some level, which I think is probably a mistake."

The Federal Reserve has said it will only consider raising interest rates when the jobless rate falls below 6.5%.

After the European Central Bank left its policy unchanged yesterday, France's trade deficit and government deficit both showed a rise for May in new data Friday morning.

German industrial output surprised analysts by growing 1.8% month on month, but the Bundesbank today cut its forecasts for economic growth from 0.4% to 0.3% for 2013, and from 1.9% to 1.5% for 2014.

"Weak credit trends in the Eurozone," says Standard Bank's currency strategist Steve Barrow, "reflect themselves in continued recession and low inflation.

"[So] we expect the ECB to cut rates further, possibly as soon as next month."

"The European banks had no choice but to shrink their balance sheets and sell assets," Reuters quotes a "senior source" commenting on the dramatic fall in lending to commodity traders since 2011.

With Europe's share of global commodity lending now down on one estimate from 75% before the Eurozone crisis to 50%, "I can't see them becoming dominant again," the newswire quotes Jean-Francois Lambert, head of commodity trade finance at HSBC.

Meantime in India – the world's heaviest gold-buying nation – the government's new campaign against household gold demand was challenged today by the jewelry industry, as well as market analysts.

"We are with the government on the need to reduce the current account deficit," the Wall Street Journal quotes but not at the cost of damaging the industry," chairman of the All India Gems & Jewellery Trade Federation, Haresh Soni.

"The recent round of initiatives to put a check on imports," says Pankaj Parekh, vice chairman of the Gem & Jewellery Export Promotion Council, "will make lives of small and medium jewellers difficult in the coming days."

Some 3.5 million people work in India's gold and jewelry sector, says theEconomic Times, with 80% of them living in Bengal province.

But "The [government] knows they can't control jewellery demand," says Motilal Oswal analyst Kishore Narne to the Financial Times.

"They probably just think they might as well make some money off it."

(c) BullionVault 2012

The Wholesale price of gold flipped yet again either side of $1400 on Thursday in what dealers called "choppy" trade ahead of tomorrow's much-anticipated US jobs data for May.

Asian stock markets followed Wall Street's overnight loss to finish lower, but European equities rallied as major government bonds held flat.

Commodities slipped even as the Dollar fell to new 4-week lows after the Bank of England and the European Central Bank both left monetary policy unchanged at their June meetings.

Silver ticked higher to $22.65 per ounce.

"On any downside below $1400 per ounce," said Standard Bank analysts in a note, "we still feel that physical demand should once again return and thereby limit moves lower.

"Since April this support from the physical market has prevented gold from pushing significantly below $1360 per ounce."

Officials in India – the world's No.1 – today urged banks to deter consumer demand for gold after raising import duty to 8% on Wednesday.

In China – the world's second-largest gold buying nation – "The ongoing Shanghai arbitrage is the main attraction for demand," says a trader in Sydney, quoted by Reuters.

Prices of Shanghai gold futures held some $20 about international benchmarks on Thursday. China's markets will be closed for the first three days of next week for the Dragon Boat Festival.

In the United States – world No.3 for gold jewelry and investment purchases – demand for American Eagle gold coins remains "unprecedented" according to US Mint acting director Richard Peterson.

"We are buying all the coin blanks [which suppliers] can make."

Anti-government protests meanwhile continued in Turkey, the fourth-largest market for gold in 2012.

"While [India's] duty hike may make bullion more expensive," writes HSBC analyst James Steel, "it is important to note that gold prices in local currency terms are currently lower than at any time in the last year"

Prices to buy gold in Indian Rupees "are still at attractive levels," says Steel.

A day after imposing new blocks on legal gold imports, the Indian government yesterday hiked bullion import duty from 6% to 8% by value – an 8-fold increase from the start of 2012, when New Delhi began blaming gold jewelry and investment purchases for India's large balance of trade deficit.

"This shows that the Indian government is very serious about reducing gold imports," says one bullion dealer.

While the immediate impact will be higher prices for Indian households, "The nature of demand at the retail level is such that restricting supply will not be effective in the long run," says India's managing director at market-development organization the World Gold Council, P.R.Somasundaram.

"[It's] likely to lead to...demand being met increasingly through unauthorised channels, which will not be positive for either the economy or for society."

Also known as the "parallel market", smuggling may account for 20% or more of India's total imports in 2013, according to one estimate quoted by the Economic Times.

Called "wasteful expenditure" by one senior official this morning, household gold demand should be further deterred by advising customers against buying gold coins, finance minister P.Chidambaram told the same banking conference in Mumbai.

The new import duty should be positive for the Indian Rupee, albeit short term, agree analysts at Societe Generale, Bank of America-Merrill Lynch and Kotak Mahindra Bank.

Thursday morning however the Rupee fell, down to 57 per US Dollar for the first time in 12 months and very near its all-time record low.

(c) BullionVault 2012