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U.S. DOLLAR prices for buying gold rose briefly above $1600 per ounce Tuesday morning before falling back, while silver failed to hold above $29 an ounce and stock markets fell following the inconclusive Italian election result.

Italian markets were especially affected, with stocks and government bonds seeing sell-offs, while on the currency markets the Euro hovered near seven-week lows against the Dollar following yesterday's 2% drop.

"Risk sentiment turned negative [this morning] on the inconclusive Italian election and fears of sustained instability for the country and Eurozone as a whole," says a note from Credit Agricole.

"The outcome of the Italian elections is likely to spark increased demand for gold," adds a note from Commerzbank, "as it could force the sovereign debt crisis back into the foreground."

Italy's general election failed to produce a clear winner, with the bloc led by Pierluigi Bersani's Democratic Party winning the lower house of parliament but failing to win the Italian Senate.

The biggest share of the lower house vote to go to a single party went to the Five Star Movement, a protest movement led by comedian Beppe Grillo, which polled 25.55%. Grillo and Five Star have campaigned against the austerity measures brought in by outgoing technocrat prime minister Mario Monti, whose party only polled around 10% of the vote for each house of parliament.

Bersani's bloc will have more seats than Five Star, however, as will the bloc led by former prime minister Silvio Berlusconi's party. Berlusconi is expected to win the region of Lombardy, according to Italian television, which adds that this should give him control over the upper house.

"The political situation across Europe is effectively a race between austerity and reforms on the one hand and the rise of populist movements on the other," says Alberto Gallo, head of European macro credit research at Royal Bank of Scotland.

"Austerity is painful, and if reforms are not implemented in time, you run the risk of social unrest and populism. It hasn't happened so far in Greece, it hasn't happened in Portugal or Spain, but we are very close in Italy."

The FTSE MIB, Italy's main stock market, fell 5% from yesterday's close in Tuesday's early trading, while investors also sold Italian government bonds, pushing 10-Year yields to a three month high above 4.9%.

"It's clear that from a foreign investor point of view they're very concerned about political instability and forming a government that can push through pro-growth policies in Italy and in Europe," one Milan-based fund manager told newswire Reuters this morning.

Gold exchange traded funds tracked by news agency Bloomberg meantime saw their holdings fall to a five-month low of 2536.3 tonnes yesterday.

"The latest collapse in gold ETF holdings stands in sharp contrast to our [earlier] assumption that ETF positions were likely driven by longer-term allocation rather than short-term trading," says a note from the commodities research team at Goldman Sachs.

"Instead, ETF holdings are increasingly exhibiting a strong inverse correlation to real [inflation-adjusted interest] rates, a pattern that we now expect will continue going forward."

Goldman cut its gold price forecasts, with its 12-month forecast falling from $1800 an ounce to $1550 an ounce.

"The decline in prices since last fall and our updated forecast suggests that the turn in the gold price cycle is likely already underway," the report says.

Over in Washington, Federal Reserve chairman Ben Bernanke is due to testify to the Senate Committee on Banking, Housing and Urban affairs later today. Bernanke will then appear before the House of Representatives Committee on Financial Services tomorrow to complete his twice-a-year monetary policy update to Congress.

"Given the Fed['s]...highly dovish bias, we expect them to continue printing into [the third quarter]" says UBS commodity strategist Julien Garren.

"[That's] when we in commodity strategy, in contrast to our economists, expect global growth to lose momentum. That sets up a major gold rally in Q3."

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.

U.S. DOLLAR gold prices fell back below $1700 an ounce Tuesday morning, having briefly risen above that level following news of possible progress in the ongoing fiscal cliff negotiations in Washington.

"Investors [are] seemingly wary of taking positions in a time of thin liquidity and still waiting to see whether legislators will avert the automatic spending cuts and tax hikes in the US," says a note from Swiss precious metals group MKS.

Silver also eased lower after trading above $32.50 an ounce, while European stock markets were up slightly on the day by lunchtime.

On the commodities markets, oil prices edged higher while copper fell slightly. The Euro meantime held near seven-month highs against the Dollar above $1.31.

US president Barack Obama has said he is willing to extend tax cuts currently due to expire at the end of this month for those earning $400,000 or less a year, raising his previous threshold of $250,000. Obama is now looking to raise an additional $1.2 trillion in tax revenues over the next decade, press reports say, down from the $1.4 trillion he was previously seeking.

Over the weekend, Republican House of Representatives speaker John Boehner dropped his outright opposition to tax increases, saying he would consider allowing tax cuts to expire for those earning more than $1 million annually.

Obama has also said he will settle for a two-year increase in the US federal debt ceiling, rather than ask for the power to raise it to be transferred from Congress to the Oval Office, the Financial Times reports. The US is expected to hit its $16.4 trillion borrowing limit in February.

"[The White House is] talking about how close Obama's position is to what Boehner is willing to accept," points out Brad DeLong, professor of economics at Berkeley.

"They are not talking about how close Obama's position is to what [House majority leader Eric] Cantor and the right wing of the House Republican caucus are willing to accept...If Obama makes a deal with Boehner, the next stage is for Boehner to say that while the deal is fine with him, he cannot control his members, and that Obama needs to make additional concessions."

"It is all very tight and it is still possible that [the fiscal cliff issue] runs into next year," says Steve Barrow, head of G10 research at Standard Bank.

"But what does seem clear is that some sort of deal will be done and that's clearly helping to support markets, although the optimism is quite guarded."

"We expect subdued gold-trading action until the market is clear on the fiscal cliff negotiations," says VTB Capital analyst Andrey Kryuchenkov.

"We see US lawmakers striking an uneasy late deal over spending reductions and tax hikes."

UK inflation meantime held steady at 2.7% last month, according to consumer price index data published Tuesday.

"Although unchanged overall...there were significant upward and downward pressures on CPI annual inflation between October and November," the Office for National Statistics says, adding that prices for food, nonalcoholic beverages and domestic energy rose while the cost of items such as motor fuel and furniture fell.

The Bank of England's Quarterly Bulletin published this morning says that "early signs have been encouraging" that its Funding for Lending Scheme is boosting the amount of credit provided to the economy, although it adds that "given the usual lags from credit being offered to loans being made, the FLS is unlikely to materially affect lending volumes until 2013".

"Easier access to bank credit should boost consumption and investment by households and businesses," the bulletin says.

"In turn, increased economic activity should raise incomes."

The FLS was launched back in July with the aim of providing funds to banks and building societies for the specific purpose of being used to provide credit to households and non-financial businesses.

Over in China, the world's second-biggest gold buying nation in the third quarter, a growing number of China's bankers expect to see looser monetary policy, according to a quarterly survey published by China's central bank Tuesday.

Although 75% of respondents said they believe the current policy stance is the right one, 19.8% said they expect to see some form of easing in the first quarter of 2013. By contrast, only 5.9% of respondents to the Q3 2012 survey said they expected to see monetary easing in Q4.

India's central bank meantime left its main policy interest rate on hold at 8% today.

"The inflation picture is still not comforting enough for the central bank to let down its inflation guard," says HSBC chief India and Southeast Asia economist Leif Eskesen in Singapore.

Indian inflation as measured by its wholesale price index fell to 7.24% last month, down from 7.45% in October. India's central bank has said it wants to see inflation fall to 5%.

India is traditionally the world's biggest gold buying nation.

Ben Traynor

BullionVault

(c) BullionVault 2012

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

"We continue to be bullish so long as gold holds above the $1705 low from mid-November," says the latest technical analysis from Scotia Mocatta.

Over in New York, the difference between bullish and bearish contracts held by Comex gold futures and options traders, the so-called speculative net long, rose for the second week running in the week ended last Tuesday, data published last night by the Commodity Futures Trading Commission show.

"Based on the rally across metals last week, that speculative length is most likely to have picked up substantially [since last Tuesday]," says Standard Bank commodities strategist Walter de Wet. 

Comex gold options expire later on Tuesday.

"For calls, the bulk of open interest [OI] rests at the $1800 strike, with more than 3.2 million ounces," says a note from UBS.

"With OI so high, could today be the day that gold gravitates closer to the much coveted $1800 level?"

Over in India, traditionally the world's biggest source of private gold demand, the Rupee regained some ground against the Dollar Tuesday, but remained near two-month lows, with Rupee gold prices near two-month highs.

"There are no [gold] buyers at these levels," says Mayank Khemka, managing director at New Delhi bullion wholesaler Khemka Group.

"There are a few investors who are selling and booking profits."

Silver meantime also edged lower this morning, though it remained above $34 an ounce, as other industrial commodities were broadly flat.

Eurozone finance ministers agreed early on Tuesday to amend the timetable for reducing Greece's debt-to-GDP ratio. Greece is now expected to bring the ratio down to 124% by 2020, up from the previous target of 120%. An additional target of "substantially lower than 110%" has been set for 2022, while by 2016 Greece should aim for an interim target of 175%.

International Monetary Fund chief Christine Lagarde called previously for there to be no movement in the deadline or target, arguing that instead Greece's debt burden should be reduced by imposing further losses on creditors.

In addition, a Eurogroup statement referred to the possibility of Greece buying back some of its debt currently trading below par value, a measure Germany has advocated.

"If this is the route chosen," the statement said, "any tender or exchange prices are expected to be no higher than those at the close on Friday 23 November 2012."

The deal also included a possible reduction of the interest rate Greece pays on bailout loans, as well as a 10 year suspension of such payments, although these measures are subject to how much progress is made on reforms.

"The Eurogroup expects to be in a position to formally decide on the disbursement [of Greece's next tranche of bailout funding] by 13 December," the Eurogroup statement said.

On the currency markets the Euro edged lower against the Dollar Tuesday morning, as gold and silver also eased slightly in Dollar terms.

"Gold does not appear to be particularly impressed by last night's agreement," says this morning's commodities note from Commerzbank.

"The budget balance and economic growth targets set in the program are very ambitious, and it is questionable whether they will actually be achieved. If not, the Greek debt problems could return to the spotlight more quickly than anticipated."

Greece's economy will shrink by 4.5% next year, following a contraction of 6.3% in 2012, according to the latest Economic Outlook published by the Organisation for Economic Cooperation and Development Tuesday.

"The monetary policy stance should be further eased in many economies," the OECD report says.
 

"Additional easing is required in the Euro area, Japan and some emerging market economies, including China and India... excessive near-term fiscal consolidation should be avoided."

The OECD has cut its growth forecasts for the UK, predicting a 0.1% contraction for 2012, followed by growth of 0.9% next year – down from 1.9% forecast back in May.

The second estimate of third quarter UK GDP published this morning confirmed the UK economy grew at 1.0% between July and September.

Britain's chancellor George Osborne meantime unveiled his choice of successor to Mervyn King as Bank of England governor Monday. Osborne has appointed current Bank of Canada governor Mark Carney, describing him as "the best for Britain". Carney will take over the role next July.

Ben Traynor

BullionVault

(c) BullionVault 2012

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

U.S. DOLLAR prices to buy gold fell back below $1750 an ounce, a few Dollars below where they closed last week following Friday's rally, while stocks and commodities also edged lower and US Treasuries gained ahead of further discussion on Greece at today's meeting of Euro finance ministers.

Silver meantime dipped briefly below $34 an ounce this morning, though it remained within 1% of Friday's one-month high.

On Friday, spot gold rallied in US trading to close above $1750 an ounce for the first time in over a month. One analyst this morning called Friday's move a "technical breakout" enabled by "illiquid trading conditions" a day after Thursday's Thanksgiving holiday in the US.

"We'd like to see prices above $1760 to confirm the movem," adds a note from ANZ.

That would pave the way for a test of $1790-$1800...[but] We think $1800 will prove to be a step too far in the current market, and remain confident in year-end forecast of $1780."

Over in India, where a central bank official talked today of the benefits of investing in "dematerialized gold", bullion importers today opted not to buy new stock for the wedding season, with the Rupee weakening against the Dollar.

Eurozone finance ministers meet today to discuss Greece, following last Tuesday's meeting that ended without agreement to pay Athens its latest tranche of bailout funding. 

Policymakers are yet to agree on how Greece should reduce its debt-to-GDP ratio, with the aim of bringing it down to 120% over the next decade. Some Euro members have suggested reducing the interest rates Greece pays on its loans, while Germany is reported to favor allowing Greece to buy back some of its debt at below face value.

In a closed-door meeting last week German finance minister Wolfgang Schaeuble reportedly told his counterparts from France, Italy and Spain, as well as International Monetary Fund chief Christine Lagarde, that Germany might eventually write off some of its loans to Greece. At the Eurozone finance ministers meeting the next day however Schaeuble ruled this out.

"It turns out that Schaeuble may have exceeded his mandate from the Chancellery, if he had one," one EU official told Reuters.

Elsewhere in Europe, two thirds of the vote went to pro-independence parties in yesterday's regional elections in Catalonia, with the Catalan Republican Left (ERC) party, one of several parties that have called for a referendum on Catalonia's independence from Spain, more than doubling its number of seats in the regional assembly in elections held Sunday. 

The Convergencia i Unio party of Catalan president Artur Mas won 50 of the 135 seats, down from 62, Bloomberg reports, meaning Mas does not have a majority in the assembly.

"With a majority, Mas could have negotiated [with the national government in Madrid] for all kinds of goodies to postpone the referendum but clearly that's not an option anymore," says Ken Dubin, political scientist at Carlos III University in Madrid.

Despite being Spain's richest region, Catalonia requested a €5 billion bailout from the national government back in August. Mas has called for independent tax collection and has said net transfers from Catalonia to other regions are to blame for its financial difficulties.

Over in India meantime, rules restricting banks from buying gold back from customers are "a work in progress", the Reserve Bank of India's deputy governor Subir Gokarn told a conference Monday.

Gokarn also elaborated on last week's announcement that the authorities are looking at creating investment products linked to gold to satisfy demand in a country that is traditionally the world's biggest god buying nation, and which imports the vast majority of its bullion.

"Since current account deficit is large and capital flows are becoming more uncertain," Gokarn said, "the role of innovation is to find ways to not deny the ability or choice of investing in gold... can we find ways to give [people] gold like products, what one may call dematerialized gold, with gold like qualities but are not entirely dependent on physical possession."

Ben Traynor

BullionVault

(c) BullionVault 2012

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 U.S. DOLLAR gold price traded close to $1730 an ounce during Thursday morning's London session, holding onto gains made a day earlier, as European stock markets edged higher, with US markets closed today for Thanksgiving.

"We believe that the German Bundesbank's sale of 4.2 tonnes of gold was intended solely for producing commemorative coins," says today's commodities note from Commerzbank, referring to International Monetary Fund figures published Wednesday showing October's buying and selling of gold by central banks.

"By its own account, the Bundesbank keeps 7 tonnes of gold ready each year for the production of coins, gold which it sells to Germany's Federal Ministry of Finance. In October 2011, the Bundesbank had sold 4.7 tonnes of gold for this purpose."

Silver hovered below $33.50 an ounce this morning, like gold holding gains from Wednesday, as oil prices ticked lower and copped gained.

Industrial demand for silver is forecast to rebound next year following an estimated 6% drop in 2012, according to a report by precious metals consultancy Thomson Reuters GFMS published by the Silver Institute.

"This will owe much to a new peak in China," the report says, "while a jump in the Indian market will see the country post its second highest total on record."

Industrial demand accounted for more than half of total silver demand last year, with that share projected to grow to around 60% in 2014, according to GFMS.

China's manufacturing sector has shown improved activity this month, according to the provisional release of HSBC's purchasing managers index published Thursday. HSBC's flash PMI rose 50.4, up from 49.5 a month earlier, with a figure above 50 indicating an expanding sector.

In Europe meantime, flash PMI data published by Markit show improved manufacturing conditions in both Germany and the Eurozone as a whole this month, although the sector PMIs remains below 50.

Increasing the European Union's budget would be "quite wrong" said British prime minister David Cameron this morning as he arrived in Brussels ahead of a summit that will see discussions of the EU's budget over the rest of this decade.

Cameron's coalition government lost a parliamentary vote at the end of last month when members of his Conservative party joined opposition Labour in backing calls for an outright cut in the EU's budget rather than just a freeze.

"[Cameron's] people expect the impossible," says Tim Bale, professor of politics at Queen Mary University of London.

"That's the problem, they want him to fail. They don't want him to bring back the deal that can possibly be done, because that will prove [Britain] can't deal with the EU and the only solution is to get out of it."

The Euro extended yesterday's gains this morning following reports that Euro members could contribute an additional €10 billion to temporary bailout fund the European Financial Stability Facility in order to fund Greece while it waits for international lenders to agree payment of its latest tranche of bailout funding.

Argentina meantime must $1.3 billion to hedge funds that did not agree to the country's sovereign debt restructuring in 2001, a US court ruled Wednesday.

Judge Thomas Griesa has issued an injunction against Argentina, adding that this extends to "other persons who are in active concert or participation with the parties or their agents."

This includes Bank of New York Mellon, which is trustee for Argentina's restructured debt, and extends to the US payments system, the Financial Times reports.

A ship from Argentina's navy was seized in Ghana last month following an application by a subsidiary of US hedge fund Elliot Capital Management, one of the holdouts from the 2001 default.

India's government is examining the creation of financial investments linked to gold, such as gold-backed bonds, the Hindustan Times reports.

"Recent [central bank] data showed a declining trend of savings by Indian households including bank deposits," an official from India's finance ministry said, "[so] in order to attract household savings, paper products that are linked to gold [should] be developed." 

Ben Traynor

BullionVault

(c) BullionVault 2012

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

U.S. DOLLAR gold prices drifted lower to $1722 an ounce this morning in London, slightly down from last week's close, while stock markets also fell along with US Treasury bonds as US policymakers continue to discuss how to deal with the so-called fiscal cliff.

"Gold is consolidating last week's strong up leg from $1673 to $1739," says the latest technical analysis from bullion dealer Scotiabank.

Silver prices edged down to $32.38 an ounce, also slightly down on last week's close.

Broad commodities were little changed on the day by lunchtime in London, while on the currency markets, the Euro extended yesterday's gains against the Dollar following news that Greece has successfully raised the €5 billion it needs to cover a bond repayment this week.

Forty unions in 23 countries meantime were expected to take part in anti-austerity strikes across Europe today, according to the European Trade Union Confederation.

Police clashed with protestors in Madrid as unions in Spain and Portugal held their first ever coordinated strike, Reuters reports, bringing transport and manufacturing to a halt in many places.

Workers in Belgium, France, Greece and Italy were among those planning stoppages as part of the 'European Day of Action and Solidarity'.

In the US, President Obama plans to propose $1.6 trillion worth of tax rises on corporations and wealthy individuals over the next ten years, the Washington Post reports.

After meeting labor leaders yesterday, Obama will meet business representatives today as he continues his efforts to build support for his plans to avoid the so-called fiscal cliff of tax rises and spending cuts currently due at the start of January.

Democrats have said they would like to see tax cuts on the wealthiest 2% brought in under President Bush expire. Republicans have expressed opposition to this.

As well as letting the Bush tax cuts expire, the government will also need to impose additional taxes, according to US Treasury secretary Timothy Geithner.

"When you take a cold, hard look at the amount of resources you can raise from that top 2% of Americans through limiting deductions," Geithner said yesterday, "you will find yourself disappointed relative to the magnitude of the revenue increases that we need."

"Our short-term outlook continues to call for further gains in gold," says a note from brokerage INTL FCStone, "but we would not be surprised by a rather substantial correction once a fiscal cliff agreement is reached, particularly if the accord is more comprehensive in nature and not a patchwork job that merely kicks the can down the road."

"If we have brinkmanship, and we don't see a resolution, that could put downward pressure on gold," adds Deutsche Bank analyst Daniel Brebner.

Gold prices will "take out $2000 [an ounce]," according to Brebner's colleague Raymond Key, Deutsche bank's global head of precious metals trading, speaking in an interview he gave in Hong Kong where he was attending the annual London Bullion Market Association conference.

"We'll go higher...that's on the view that [the Federal Reserve will] continue to print money."

The minutes of the most recent Fed meeting are published later today.

The Bank of England meantime has lowered its UK growth forecast to 1% for next year, down from its previous forecast of 2%.

In its quarterly Inflation Report published this morning, the Bank said "underlying growth is likely to remain sluggish in the near term".

"The subdued recovery reflects a judgment that the global environment will remain unfavorable," the Bank's governor Mervyn King said.

"We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while."

Consumer price inflation rose to 2.7% last month, figures published Tuesday show, the 36th month in a row it has been above the Bank's 2% target.

"Inflation is likely to remain above target for the first part of the forecast period," said King this morning.

"Nevertheless, the [Monetary Policy] Committee judges that inflation is likely to fall back in the second half of next year."

The global silver bullion market is expected to remain in surplus this year, with the surplus rising to 300 million ounces, Philip Klapwijk, global head on metals analytics at consultancy Thomson Reuters GFMS said Wednesday.

"We see weaker fabrication demand on two main reasons," said Klapwijk.

"One is industrial fabrication has slowed quite considerably this year, especially in recent months, and we see weakness especially in the electronics field and photovoltaic end users."

Ben Traynor

BullionVault

(c) BullionVault 2012

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 FTSE100 is expected to open 5 points higher at 5,890, the DAX is expected to open 40 points higher at 7,415 and the CAC40 is expected to open 5 points higher at 3,484

 

As it slowly became apparent that the outcome of the U.S. election was going Obama’s way the U.S. dollar slowly started to slide back after the strength of recent days as markets slowly adjusted to the fact that there would be continuity with respect to the economic policies of the last four years.

 

What it doesn’t change is the problems facing the U.S. economy, and the roadblock that is the fiscal cliff. Once the euphoria of an Obama win has died down, this is likely to be the one thing that markets and investors focus their attention on,

 

It is therefore with a sense of relief that Europe’s markets look set to open higher as the uncertainty of recent days and weeks looks set to be replaced with continuity of policy and familiarity with the same custodian of the world’s largest economy.

 

While events in the U.S. are bound to dominate trading today events in Europe are also likely to be keenly watched with particular attention once again focussed on Athens as Greek lawmakers once again look to vote on yet another austerity budget against a backdrop of striking private and public sector workers outside the parliament building, hoping to influence the vote against the implementation of yet more austerity on a country currently undergoing its fifth year of recession.

 

Splits have already manifested themselves within the Greek coalition government with the Democratic Left refusing to back some of the measures; while there have also been splits in the other parties, Pasok and New Democracy.

 

If the measures are passed which seems probable, if only narrowly, that won’t be the end of the story, as the EU, IMF and ECB still need to deal with the problem of Greece’s debt sustainability which still hasn’t been addressed.

This also leaves the problem of trying to implement the deeply unpopular measures which given Greece’s track record could well be a problem.

 

In economic data from Europe out yesterday we saw the beginnings of a convergence between the core economies and the peripheral economies in terms of the direction of the data. This would be a good thing if it was being driven by a recovery of the peripheral data towards the core economies, but unfortunately it isn’t. It is being driven by a rapid deterioration in both Germany and France’s economic data as their economies slip into the mire of contraction with the economies of Italy and Spain, as economic activity slows across the board as contagion fears hit output in the core economies.

Yesterday’s German factory orders data was a shocker, falling 3.3% in September and today’s data is also expected to reflect this new reality with German Industrial production for September set to fall back 0.4%.

Eurozone retail sales are expected to show no change in September as consumers remain reluctant to spend money against a back drop of slowing growth.

 

The European commission is also expected to release its latest economic forecasts for Europe’s beleaguered economies and they aren’t expected to be good. Reports from a Spanish newspaper have suggested that the EU has predicted that the Spanish economy will contract 1.5% three times the Spanish government’s estimate.

 

EURUSD – this week’s close below the 200 day MA at 1.2835 shifts the focus towards the 1.2650 level and the 100 day MA. A rebound needs to overcome the 1.2900 level to stabilise and target last weeks high at 1.3000.

 

GBPUSD – the pound continues to find support just above the 1.5950 level, but we remain on course for a test towards 1.5910 and 38.2% retracement of the 1.5270/1.6310 up move. Below that we also have the 200 day MA at 1.5845, a break of which could well target further rapid declines. The pound needs to get above 1.6080 to open up a move back towards last week’s high at 1.6180.

 

EURGBP – trend line support at 0.7990 from the 0.7755 lows continues to hold thus far while a break below this support targets 0.7955 50% retracement of the up move from 0.7755 lows to the 0.8165 highs. A recovery above 0.8030 is needed to retarget last weeks high at 0.8075.

 

USDJPY – the U.S. dollar has slid back to 79.90 just shy of the 79.75 cloud support. This level needs to hold to target a move towards the cloud peak at 81.80. Only below 79.75 undermines the bullish scenario and retargets 79.20.

U.S. DOLLAR gold prices dropped below $1710 an ounce Monday morning in London, below where they ended last week, after failing to hold onto gains made in Asian trading.

Silver prices dropped below $31.80 an ounce, also down from Friday's close, as European equities also fell. US stock markets will be closed today as a result of Hurricane Sandy – the first unscheduled US market closure since September 11 2001, and the first to be caused by weather since 1985.

On the commodities markets, oil and copper ticked lower, while gasoline futures rose. The US Dollar also gained, along with major economy government bond prices.

"Gold has been trading lower as it follows the US Dollar appreciation," says Bayram Dincer, analyst at LGT Capital Management in Switzerland.

"Gold is still range-bound, lacking any upside drivers above $1725 an ounce. The lower range of $1700 is perceived as a good support."

"Market focus switches to this week's US non-farm payrolls data [on Friday]," says a note from Barclays Capital, which cites $1698 as a support level for gold prices.

US core personal consumption expenditure data for September, a key inflation measure followed by the Federal Reserve, were published this morning, showing a slight rise in PCE inflation to 1.7%.

Over in India, traditionally the world's biggest source of private gold demand, the Rupee fell to a five-week low against the Dollar Monday, pushing up the local price of gold.

"[There are] a few stray deals are there in the market," one Mumbai importer told newswire Reuters, "[but] we haven't seen big volumes yet compared to last week."

The Reserve Bank of India raised its wholesale price inflation forecast for 2012-13 to 7.7% Monday, up from 7.3%. The central bank also cut its projection for India's growth rate from 6.5% to 5.7%.

India's finance minister P. Chidambaram meantime set a target of 3% for the government budget deficit by 2017 as part of a five-year plan of economic reforms announce Monday.

"[Chidambaram's timing] suggests growing political pressure on the RBI to cut [interest] rates," says a note from Nomura.

Here in Europe, Greece's public sector creditors, which include the European Central Bank, should take losses on their holdings of Greek government debt, according to a draft report from the so-called 'troika' of lenders – the ECB, European Commission and International Monetary Fund – reported by German magazine Der Spiegel.

A restructuring of Greek debt back in February saw losses imposed on private sector bondholders. The ECB said it would forego any profits on maturing bonds bought below par in the market, but did not take losses as part of that deal.

"For the ECB, forgiving debt isn't possible because it would be equivalent to indirect state financing," ECB Governing Council member and Austrian central bank governor Ewald Nowotny said today.

German finance minister Wolfgang Schaeuble rejected the idea Sunday, describing it as unrealistic. Schaeuble has proposed creating a so-called 'currency commissioner' by extending the powers of the European Commissioner for Economic and Monetary Affairs to include a veto over national budgets.

"I explicitly support this proposal," ECB president Mario Draghi said in an interview published by Der Spiegel Sunday.

"If we want to restore confidence in the Eurozone, countries will have to transfer part of their sovereignty to the European level."

In Madrid meantime Spanish prime minister Mariano Rajoy met with Italian prime minister Mario Monti Monday, three days after Monti told reporters that a Spanish bailout request "would make market speculation less aggressive".

A formal bailout is a precondition of the ECB's Outright Monetary Transactions program unveiled last month, which would see the central bank buy distressed sovereign debt on the secondary market.

"Rajoy is very much following his own route now," says Gilles Moec, London-based co-chief European economist at Deutsche Bank.

"Rajoy was probably pressed by Monti in August to accept a pre-emptive [bailout]...it would have made things so much smoother in Europe and for Italy as well."

Italy sold €8 billion of six-month Treasury bills Monday, at a yield of 1.347% - down from 1.503% last month, and the lowest since March.

In the UK, mortgage approvals rose to a four-month high in September, according to figures published by the Bank of England this morning.

Over in the US, the difference between number of bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex – known as the speculative net long – continued to fall in the week to Tuesday, weekly data published by the Commodity Futures Trading Commission Friday show.

"The liquidations are unsurprising," says Standard Bank research strategist Marc Ground.

"However, we expect some stability going forward for two reasons. First, net speculative length as a percentage of open interest has come off considerably...second, we believe the key $1700 support level should hold, mostly due to renewed physical demand at this price level."

Elsewhere in the US, President Obama has called off a presidential campaign trip to Florida while his opponent Mitt Romney has cancelled appearances in Virginia and New Hampshire as a result of Hurricane Sandy.

Ben Traynor

BullionVault

(c) BullionVault 2012

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

U.S. DOLLAR gold prices traded just above $1700 an ounce throughout Friday morning in London, following an overnight reversal of yesterday's rally, while European stock markets traded lower this morning following losses in Asia, ahead of the release of US GDP data later today.

"The trend remains bearish so long as gold trades below $1723," says the latest note from Scotiabank technical analyst Russell Browne.

"People are still looking a bit at the downside rather than the upside for the time being, waiting for it to break $1700," adds Ronald Leung, director at Lee Cheong Gold Dealers in Hong Kong.

Silver prices traded just above $31.70 per ounce for most of the morning, 1.2% down on last Friday's close, while other commodities also edged lower and major government bond prices gained.

"Commodities have come under renewed pressure, owing to the Asian equity markets weakening in the face of disappointing corporate data and a stronger US dollar," says a note from Commerzbank.

The US Dollar Index, which measures the Dollar's strength against a basket of other currencies, hit a new seven-week high this morning.

Dealers in Asia meantime reported a quieter session this morning, with public holidays in Singapore, Malaysia and Indonesia.

"There's light buying from Thailand and that's about it," one dealer told newswire Reuters this morning.

"Surprisingly, the demand from India is not there...in fact, Indian consumers started to sell again when the market was a bit higher. Maybe they will leave it to the last minute [before next month's Diwali festival] before coming back to buy again."

Going by London Fix prices, gold looked set for a third straight weekly loss Friday lunchtime in London, the first time this has happened since March.

"We continue to see modest pressure on gold prices in the near term," says HSBC precious metals analyst James Steel.

Here in Europe, Spain's unemployment rate rose to 25% in the third quarter, a new record high, according to official data published Friday. 

Santander, the country's biggest bank, yesterday urged the government to seek a formal bailout, which would pave the way for the European Central Bank to buy Spanish government bonds through its Outright Monetary Transactions program.

"A situation in which the Treasury funding is being helped by contingency credit lines offered by any international body will produce a fall in the sovereign debt risk premium and, as a consequence, a fall in banks' risk premium," said Santander chief executive Alfredo Saenz.

A Spanish bailout however is "a necessary, but not a sufficient condition" for ECB bond market intervention, ECB Executive Board member Joerg Asumussen said Friday.

Spain has already agreed a credit line of up to €100 billion from Eurozone rescue funds to finance the restructuring of its banking sector.

Elsewhere in Europe, ratings agency Standard & Poor's last night downgraded French bank BNP Paribas by one notch, from AA- to A+. Ten other French banks, including Credit Agricole and Societe Generale, were put on negative outlook.

Nine more banks have been named as part of the ongoing Libor investigation. Bank of America, Bank of Tokyo Mitsubishi, Credit Suisse, Lloyds, Norinchukin, Rabobank, Royal Bank of Canada, Societe Generale and West LB have all been sent subpoenas by the New York and Connecticut attorney-generals.

In South Africa, the majority of striking workers in the gold mining sector returned to work yesterday, Reuters reports, after unions agreed a wage deal with mine operators.

Anglo American Platinum meantime said Thursday it lost an estimated 138,000 ounces of platinum output, equivalent to over $200 million, as a result of South African strikes. The chief executive of Anglo American, which owns an 80% stake in Amplats, resigned Friday after leading the company for nearly six years.

In other mining news, African Barrick Gold lowered its 2012 production forecast Friday, when it also reported a 1.6% rise in cash costs per ounce as part of its third quarter results. China Gold is currently doing due diligence as part of its bid to buy Barrick Gold's 74% stake in African Barrick.

Here in London, gold trading through London's 11 market-making banks jumped 35% last month from August to the highest Dollar value since the all-time record gold prices of summer 2011.

The average daily volume of gold bullion transferred between wholesale market clearing members climbed 26% last month compared to August.

The daily average volume of silver bullion transferred increased 4% month-on-month in September.

Ben Traynor

BullionVault

(c) BullionVault 2012

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 U.S. DOLLAR gold price eased lower Friday morning in London, falling to $1767 an ounce, 0.7% down on the start of the week, while stock markets also ticked lower and commodities were broadly flat.

The silver price fell below $34 an ounce, before trading sideways until lunchtime in London.

"For days now the gold price has been hovering in a narrow trading range around the $1770 per troy ounce mark," says today's Commodities daily note from Commerzbank.

"It clearly lacks the necessary impetus to make further gains just now, the debt crisis in the Eurozone having not escalated any further and the supply risks in South Africa already being largely priced in."

"Investors are very cautious," agrees Andrey Kryuchenkov, analyst at VTB Capital.

"[Gold holdings backing] exchange-traded products are near record highs, long speculative positions [in Comex Gold Futures] are substantial and they showed little reaction to Spain's downgrade [on Wednesday]." 

Credit Suisse meantime raised its forecast for the 2013 average gold price Friday to $1840 per ounce, up from $1720, citing the US Federal Reserve's announcement last month that it will continue asset purchases indefinitely as a factor behind the decision.

Over in China, the world's second-largest gold buying nation in 2011, the Yuan has risen to its highest level against the Dollar in 19 years.

The Yuan has been allowed to come close to the upper limit of the trading range maintained by the People's Bank of China two days in a row this week.

"This is something that has been quite remarkable," says Royal Bank of Scotland economist Louis Kuijs in Hong Kong. 

"The PBoC has surprised the markets but the appreciation is in line with the observation that policy makers don't seem to be as concerned about the slowdown as some people in the markets and some corporates."

"It would be in Beijing's interest to see [US president] Obama re-elected [in next month's presidential election]," argues Credit Agricole strategist Dariusz Kowalczyk.

"Given [Obama's opponent] Romney's tougher stance on China…the PBoC may be trying to help Obama to make the argument in the next debate that he has succeeded to pressure Beijing into appreciating [China's currency]."

Romney has said that if he wins the presidency on of his first acts would be to label China a currency manipulator. 

"Labeling China as a currency manipulator might not help enhance the Dollar's safe haven status," says this morning's note from Standard Bank analyst Steve Barrow, "given that foreign central banks, including China's, own just over a third of [US] Treasuries."

Japan's government meantime has cut its assessment for the country's economic outlook for the third month in a row, the longest stretch of consecutive downward revisions since the five months following the Lehman Brothers collapse four years ago.

US Federal Reserve policymakers have studied Japan's experience over the last two decades "very carefully", Fed vice chair Janet Yellen said yesterday.

"The key lesson that we have drawn about the Japanese experience is that when an economy is faced with a serious downturn that threatens deflation, the most important thing that the central bank can do is to act very aggressively to fight it," Yellen told an audience at a panel discussion held as part of the International Monetary Fund and World Bank annual meetings in Tokyo.

Here in London, Financial Services Authority chairman Adair Turner "believes the Bank of England should consider telling the Treasury it never has to repay some of the £375bn of government debts the Bank acquired through quantitative easing", according to a report by BBC journalist Robert Peston.

"Many conventional economists would regard with horror," Peston adds, "because it would be seen as the government, in effect, printing money to finance public spending."

In a speech last night Turner, who is regarded by some as a front runner to take over from Mervyn King as Bank governor next year, argued that QE is of diminishing benefit and that there is a need for "still more innovative and unconventional policies".

"The ultra-loose monetary policy pursued by central banks is likely to preclude any sharper fall in prices [for gold]," says Commerzbank.

Over in Europe meantime, the European Union was awarded the Nobel Peace prize Friday.

"It is a great honor for all 500 million citizens of Europe, for all the member states, and for all the European institutions," European Commission president Jose Manuel Barroso said this morning.

"Through its transformative power, the EU was able, starting with six countries, to reunite almost all the European continent."

Elsewhere in Europe, German finance minister Wolfgang Schaeuble today rejected calls made yesterday by IMF chief Christine Lagarde to give Greece extra time to implement austerity measures. 

Schauble argued that leaders should wait for the report from the so-called 'troika' of international lenders – the European Central Bank, European Commission and IMF – whose representatives have been in Athens this week negotiating with the Greek government on austerity measures.

"There is progress," said one official quoted by the Wall Street Journal Thursday.

"We are close to an agreement and I hope that by the summit next week we will have settled most issues," the official added, referring to the European Union summit that begins next Thursday

Ben Traynor

BullionVault
 

(c) BullionVault 2012
 

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