Gold Price Jumps, Cancels This Week's Loss as Eurozone Stocks Slump Again, Chinese Demand Moves to Outstrip India - 17 May 2012
UPDATED 17:00 GMT: The Gold Price jumped Thursday lunchtime and again in afternoon trade in London, erasing this week's 3.3% drop to 5-month lows against the Dollar as the Euro slumped to new 2012 lows and stock markets tumbled yet again.
For Eurozone investors – where the European Central Bank confirmed it has ceased working with some Greek banks because it believes them to be insolvent – the Gold Price jumped above last week's closing level to trade 3.3% higher from Wednesday's low.
Portugal's Diario Economico newspaper claimed that a delegation from the ECB, IMF and European Union will visit Lisbon to assess its €78 billion bail-out and discuss contigency plans should Greece quit the single currency.
Greece today swore in an interim cabinet of academics, lawyers and diplomats, pending fresh elections on June 17th.
France's new finance minister, Pierre Moscovici, today said the socialist government of Françoise Hollande will not ratify the European Union's fiscal pact agreed by 25 out of 27 member states last December.
New US jobless data for last week came in worse than expected. The Philadelphia Fed's Manufacturing Survey gave a reading of minus 5.8 vs. analyst forecasts of +10.
"Relative strength [in the Gold Price ] is approaching extreme oversold territory," said the latest technical note from bullion bank Scotia Mocatta after Wednesday's close, "but there are no warning signs yet of a change in trend."
"Gold is definitely in oversold territory, and there should be some good buying interest around the low in December," Bloomberg quoted Dong Zhuying at Haitong Futures Co. early Thursday.
"Paring its losses near key support at $1525," says Ed Meir at Intl FC Stone, the Gold Price likely saw "a decent amount of short-covering" by bearish traders after the US Federal Reserve's latest policy meeting minutes showed fresh quantitative easing was discussed.
European stock markets fell again Thursday, losing value for the 8th session out of 11 in May so far and taking Madrid's Ibex 35 index down to a fresh 9-year low.
US Treasury bonds and German Bunds reversed an early dip, nudging 10-year borrowing costs for both governments back towards record lows.
Crude oil held near a 6-month low after new data Wednesday showed US energy stockpiles more glutted than any time since 1990.
"I believe gold will become a haven again, especially if you see fragmentation in the Eurozone," said the World Gold Council's Marcus Grubb to Bloomberg TV this morning, launching market-development group's latest Gold Demand Trends report.
"Because then you're going to get currency depreciation, you may get inflation in some countries, deflation in others...and you'll see gold's attributes as a hedge come to the fore."
In the first quarter of 2012, global Gold Investment demand rose 13% by weight and 38% by Dollar value from the Jan-March period last year, says the report. In the jewelry sector, "Gold is underpined now by two large markets and China is playing catch up to India," says Grubb, also interviewed by Reuters on Thursday morning.
"Per capita gramme consumption rates are rising in China."
Acknowledged as the leading authority on global demand and supply analysis, the World Gold Council says that China's gold demand again beat India in the first quarter of 2012.
"You're going to see China become the largest gold market overall by the end of this year for the first time," Grubb believes. "It's worth remembering that growth rates are still in the 7-8% range. So people are getting wealthier, and they will continue to Buy Gold strongly we believe."
Beijing last month halved the rate of import rates on gold jewelry. So far in 2012, India has quadrupled its Gold Bullion import tax.
After last weekend's cut by China's central bank to the reserve ratio requirement – easing credit by enabling commercial banks to lend out more of the cash deposits they take – the State Council of China said Wednesday it will spend CNY36.3 billion ($5.7bn) over the next 12 months subsidizing household purchases of large electrical items, fuel-efficient cars and energy-saving lightbulbs.
Despite the cut in the reserve ratio requirement, however, lending by China's four largest banks has "been flat so far this month" says the Shanghai Securities Journal.
Both the central and commercial banks were net sellers of foreign currency in April, the People's Bank of China said this week, indicating an outflow of capital.
China's 12-month trade surplus has halved from its peak above $300 billion of early 2009, according to data cited by the Financial Times.
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