Gold is trading at USD 1,592, EUR 1,223.30, GBP 1,028.00, CHF 1,491, JPY 124,067 and AUD 1,600.50 per ounce.
Gold’s London AM fix this morning was USD 1,593.00, GBP 1,028.34, and EUR 1,222.94 per ounce.
Friday’s AM fix was USD 1,589.50, GBP 1,022.84 and EUR 1,218.94 per ounce.
Gold has fallen marginally in most currencies, extending last week’s loss, which was the biggest in nearly three months. Gold’s weakness continues despite negative economic news such as Fitch’s warning regarding downgrading France and other countries and geopolitical risk after the death of North Korea’s Kim Jong-il.
Fitch warned it may downgrade France and six other euro zone nations as it believes a comprehensive solution to the region’s debt crisis is "technically and politically beyond reach."
Asian shares fell and South Korea’s KOSPI closed 3.4% lower after being as much as 5% down after news of the death of Kim Jong-il created fears of regional instability.
The gold market barely reacted to Jong-il’s death. The death could contribute to further short term weakness and dollar strength but geopolitical instability in Asia should lead to further safe haven demand for gold.
A Reuters poll of hedge fund managers showed how sentiment towards gold remains subdued and negative. Hedge fund managers are negative on gold’s price prospects in the near term with many saying gold will fall below $1,500 an ounce over the next three months.
However, even hedge fund managers are positive on gold in the medium term and believe that gold is likely to retest September’s all-time highs – possibly by late 2012.
The industry itself as represented by government mints, refineries, brokers, bullion banks remains more bullish than hedge fund managers. Much of the industry would have an expertise and an insight into the precious metals market that your average hedge fund manager would not.
Managed money in gold futures and options cut bullish bets for the second consecutive week, the latest data from the U.S. Commodity Futures Trading Commission showed. This is another contrarian signal that gold is close to bottoming.
Holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, remained unchanged from a day earlier at a one-month low of 1,279.98 metric tons, down 15.43 metric tons, or 1.2% from a week earlier.
While investors cut 13.3 metric tons of gold from their ETP holdings yesterday, the most since Aug. 24, assets are less than 1% below the record set December 14 showing that buyers of the gold ETF are ‘stickier’, less speculative and more passive than many had assumed.
Options traders remain bullish. The most widely held option gives owners the right to buy gold at $2,000/oz by March. The eight biggest holdings are all call options at 13% or more above prices today.
ETF gold holdings remain at record highs and continuing robust demand for physical bullion and an almost complete lack of selling by bullion owners in western markets on the recent sell off again shows that the sell off was driven primarily by speculators and momentum driven funds and by liquidity starved western banks.
UBS acknowledged the possibility of official sector gold selling – saying that “larger moves were also likely taking place behind the scenes, judging from the considerable market chatter about official liquidation.”
There is also the likelihood that European banks desperate to get hold of dollars were lending or selling gold which was lent to them by “national central banks, or by gold exchange traded funds”, according to the FT.
While demand in India remains subdued, bullion demand in Europe remains brisk and there are signs that Chinese demand has picked up and China is buying the dip.
"In the very short-term, gold below $1,600 is very attractive within China," UBS noted today.
"This can be seen from the sharp increases in Shanghai Gold Exchange volumes last week. Combined SGE turnover last week was the strongest since mid-March and SGE premiums versus London hit $21, premiums not seen since mid-October” said UBS’ Edel Tully.
Central banks are also almost certainly buying gold at these levels as they have been doing in recent months on corrections.
Absolutely nothing has changed regarding the fundamentals driving the gold bull market despite this most recent sell off.
Indeed, the sell off was expected – although the scale of the selloff has surprised some.
The fundamental factors driving the market in 2012 remain the same – the Eurozone and global debt crisis, negative real interest rates and the debasement of fiat currencies being some of the primary drivers.
Rehypothecation and the serious risks that a massive period of deleveraging poses to the global financial and economic system is likely to be a very important factor in 2012 which will lead to heightened volatility but is another positive for gold prices in the long term.
Due to the continuation of the fundamental factors driving the market in 2011, most serious analysts of the gold market have not revised down their outlook for prices in 2012.
Bullion banks remain positive on gold for 2012 with major banks predicting an average gold price of between 13% and 28% above today’s spot at $1,595/oz. It will be interesting to see if these forecasts get as much international media coverage as the poll of 20 hedge fund managers has.
UBS have reiterated their bullish outlook for gold and believe gold will average $2,050/oz in 2012. This is 28% above today’s spot price of $1595/oz.
Goldman Sachs said overnight that gold will average $1,810/oz in 2012 – which is 13% above today’s spot price.
Barclays Capital have said this morning that gold will average $2,000/oz in 2012 – which is 25% above today’s spot price.
Gold will move higher due to “structural pillars of support” in an environment of negative real interest rates and rising inflationary pressures, as well as continued central bank buying.
Given the risks posed to the Eurozone and indeed the UK, gold priced in sterling and euros should experience similar gains – if not more.
The ECB’s Draghi’s warning regarding a Eurozone break up, currency devaluations and the risk of a “big inflation” is a reminder that the price of gold should be considered not solely in dollar terms but also in other currencies –especially were the European single currency to become less single.
(Bloomberg) — Central Banks May Buy 400-600 Tons of Gold in 2012, Goldman Says
Central banks may buy between 400 metric tons and 600 tons of gold next year, Goldman Sachs Group Inc. said today in an e-mailed report. The metal will average $1,810 an ounce in 2012, and bullion equities may continue to lag the gold price, the bank said.
(Bloomberg) — Gold Retains ‘Pillars of Support’ in Longer Term, Barclays Says
Gold will average $2,000 an ounce next year and retains “structural pillars of support” in an environment of negative real interest rates and rising inflationary pressures, as well as continued central bank buying, Barclays Capital said in an e-mailed note. Bullion will average $1,875 an ounce in the fourth quarter of this year, Barclays Capital said.
(Bloomberg) — Physical Gold Demand Growth to Slow in China Next Year, UBS Says
Physical gold demand in China will “remain a big part of the overall gold story next year,” even as the year-on-year growth rate may be slower than in previous years, UBS AG said.
China’s gold imports may have nearly doubled to almost 500 metric tons this year, UBS said in an e-mailed report. “In tonnage terms, that kind of increase could be repeated in 2012.”
(Bloomberg) — Gold to avg. $1,810/ oz in 2012 on low U.S. rates, risk sentiment, Goldman says in note
Availability of ETFs, easy access to physical gold, poor delivery performance of gold equities have seen them lag gold price; trend will continue said Goldman.
(Reuters) — Australia’s Newcrest Mining <NCM.AX>, the world’s third-largest gold producer, on Monday cut its full-year output guidance by around 6 percent, citing disruptions and lower grade ore at mines in Papua New Guinea and Australia.
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Silver is trading at $29.27/oz, €22.45/oz and £18.85/oz
PLATINUM GROUP METALS
Platinum is trading at $1,414.75/oz, palladium at $624.50/oz and rhodium at $1,425oz.
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