Gold Set for Biggest Monthly Gain of C21st, But Ends January with “Lackluster” Physical Interest in Asia

U.S. DOLLAR gold bullion prices looked set to record their largest calendar month gain this century by Tuesday lunchtime in London.

Gold prices hit $1745 per ounce – just less than 14% up on the Dollar gold bullion price set at the last London Fix of 2011.

By this measure, January 2012 looked set to record the fourth-largest calendar month gain in the last three decades, and the biggest since September 1999, the month that saw the signing of the Central Bank Gold Agreement, which limited the sales of gold bullion by signatory central banks.

Stocks and commodities also gained Tuesday, while government bond prices dipped.

“In overnight trade in Asia, we continued to see lackluster physical interest,” says Marc Ground, commodities strategist at Standard Bank.

“[There was] even some scrap gold and silver coming to market from Japanese recyclers…nevertheless, prices held steady.”

Physical volumes on the Shanghai Gold Exchange Tuesday were down 28% on the previous day.
The first day’s trading after Lunar New Year saw “strong physical demand” on Monday, according to one gold bullion dealer in Hong Kong.

Silver bullion prices meantime hovered around $33.80 per ounce – 21.2% up on the start of January.

Industrial manufacturers meantime are set to use over 15,000 tonnes of silver in 2012 – 2.5% more than last year – according to estimates by Barclays Capital. Morgan Stanley meantime reckons investors may invest in 2000 tonnes of silver bullion via exchange traded vehicles – following net selling by such investors of 1300 tonnes last year.

“Silver got hammered [following last April's peak],” says Dan Smith, head of metals research at Standard Chartered.

“Now we’re into a phase where it will do quite well…Appeal comes from its widespread use in both industry and investment. I think it’s relatively cheap.”

“The short-term investment argument is not entirely convincing,” counters David Jollie, strategic analyst at Mitsui Precious Metals in London, citing “weak industrial demand” in places like China.

Chinese silver imports in December were 36% down on their average for the last two years, customs data cited by newswire Bloomberg show.

Here in the UK, seasonally adjusted M4, the broadest money supply measure, fell 1.4% in December – its largest one month drop since the Bank of England began recording the data in 1982. The year-on-year fall was 2.5%.

Net consumer credit in November meantime fell by £377 million – the first net drop since last January and the biggest monthly fall since the data series began in 1993.

“There is clearly a risk that credit constraints may hinder the reallocation of resources required to rebalance the economy,” Bank of England governor Mervyn King said in a speech last week, adding that “there is scope for interest rates to remain low, and, if necessary, for further asset purchases [to facilitate quantitative easing].”

Eurozone unemployment meantime hit a record high last month at 16.5 million people – with the unemployment rate at 10.4% – according to official figures published Tuesday by Eurostat.

“In many cases you find firms continuing to delay investment projects,” notes Citigroup economist Guillaume Menuet.

“For those that are still making profits, hiring is being frozen, and for those which are under pressure to hit results or losing money, job losses are becoming the only solution that they have.”

Elsewhere in Europe, banks are preparing to borrow at least €1 trillion when the European Central Bank holds its 3-Year longer term refinancing operation next month – more than twice the amount borrowed at December’s 3-Year LTRO.

Greece meantime is hoping to conclude a deal with its private sector creditors by the end of the week, Greek prime minister Lucas Papademos said Tuesday. There remained however no agreement among European leaders over what to do about the deterioration is Greece’s fiscal position.

“Greece’s debt sustainability is especially bad,” German chancellor Angela Merkel said Monday.

“You have to find a way through more action by the Greek government, more contributions by private creditors, for example, in order to close this gap.”

At yesterday’s summit leaders agreed to accelerate the implementation of the €500 billion European Stability Mechanism, the Eurozone’s permanent bailout fund.

There was also endorsement of proposed new deficit rules – although a German suggestion that the EU appoint a budget commissioner to oversee Greece’s finance appears not to be receiving wider support.

“Surveillance of Greece’s progress is normal,” French president Nicolas Sarkozy said, “but there was never any question of putting Greece under guardianship.”

Over in the US, the Commodity Futures Trading Commission, which regulates gold futures and options trading on the New York Comex, has said it is considering new rules aimed at firms using automated and high-frequency trading systems as part of its efforts to implement the Dodd-Frank legislation on financial services.

Venezuela has completed the repatriation of 160 tonnes of gold bullion – around three quarters of its total reserves  that were held in US, European and Canadian banks – newswire Dow Jones reports.

“Venezuela’s gold is now in the hands of Venezuelans, secured by Venezuelans and at the service of all Venezuelans,” said Venezuela’s central bank head Nelson Merentes.

Gold bullion makes up 71% of Venezuela’s total foreign reserves, according to figures from the World Gold Council.

Ben Traynor
BullionVault

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

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