Gold Investments Market Update – Swiss Central Bank Gold Sales Minimal due to Likely Increasing Demand from Sovereign Wealth Funds and Many Central Banks

Gold

Gold finished trading in New York yesterday at $922.20, down 50 cents and silver was down 16 cents to $17.22. Gold has rallied in Asia and in early European trading.

While oil is up slightly and the dollar is down slightly, gold is likely to be up on bargain hunting and safe haven buying. The 100 day moving average at $916 appears to be good support and the summer low is likely to be around these levels although a brief dip below $900 is possible.

Risk aversion is in evidence again as stock markets have fallen globally on reports fuelling fears that Britain, the euro zone, Japan and the U.S. are sliding toward recession. U.S. financial stocks suffered their worst one-day decline since 2000, as investors’ recent optimism was dented by renewed fears over the health of Washington Mutual and weak U.S. housing data.

German business sentiment this month suffered its biggest decline since the 2001 terrorist attacks in New York and Washington, while existing U.S. home sales were at the lowest in a decade and UK retail sales growth slowed in June to the weakest annual rate since early 2006.

Swiss National Bank Gold Sales Minimal due to Likely Increasing Demand from Sovereign Wealth Funds and Many Central Banks

Reuters reports that the Swiss National Bank placed 68 tonnes of gold in the market in the first half of the year as part of a programme to sell a total of 250 tonnes by the end of September 2009. The central bank said this meant roughly another 37 tonnes of gold were yet to be sold as part of the programme. In June 2007, the SNB said it would sell 250 tonnes of gold by September 2009, in line with the agreement among European central banks to limit gold sales to 500 tonnes a year.

The SNB news is old news and already priced into the market and given the extent of international demand both from investors but increasingly also from sovereign wealth funds and central banks, the news will have no impact on prices. The FT reported last week that sovereign wealth funds are cutting their exposure to the dollar due to increasing concerns regarding the U.S. financial system and economy. Central banks internationally are doing likewise and western central banks have sharply decreased their gold sales and central banks in Asia, South America and the Middle East are becoming net buyers of gold again.

Today’s Data and Influences

U.K. GDP figures this morning showed the UK economy slowing sharply. The UK economy grew 0.2% in the second quarter of the year, as the credit crunch took its toll on housing and consumer spending. The figure is the lowest quarter-on-quarter growth for three years.

U.S. Core Durable Goods Orders at 1.30pm, and U.S. New Home Sales at 3pm. Both are expected to be weak.

This morning’s M3 money supply data from the eurozone should highlight that growth in monetary aggregates remains elevated and cause of concern for the ECB. M3 is the broadest measure of money supply growth and far more important than M2 which is sometimes used as ‘evidence’ of the likelihood of deflation rather than stagflation or hyperinflation.

Gold and Silver

Gold is trading at $930.20/930.80 per ounce (1130 GMT).
Silver is trading at $17.53/17.57 per ounce (1130 GMT).

PGMs

Platinum is trading at $1730/1740 per ounce (1130 GMT).
Palladium is trading at $389/395 per ounce (1130 GMT).

Mark O'Byrne

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