Daily London Gold Market Report - Immediate Trend Uncertain

By: Adrian_Ash

THE PRICE OF GOLD barely moved early Monday, trading in a $1 range before rising to break $668 per ounce as the US open drew near.

"Overall trading is not that great, and I don't see buying interest from Indonesia ," said a bullion dealer in Singapore to Reuters. "Demand from Thailand is still OK because of the Thai baht."

"Some people are buying gold because of a slight increase in oil prices," another told the newswire from Hong Kong , "but the market has been stuck in a range in the last couple of days. I guess things will depend on the Dollar; people will be waiting for Bernanke's speech."

Ben Bernanke, chairman of the US Federal Reserve, will give a two-day testimony on the US economy to Congress starting Wednesday. Notes from the most recent Fed meeting – when it chose to keep Dollar rates at 5.25% for the 13th month running – will be released Thursday.

With Tokyo closed for a national holiday today, gold traded flat all through the Asian session before opening London today nearly 1% higher from last week's start. The Euro was little changed against the Dollar after last week's 1.5% leap to fresh record highs.

That capped the Euro price of gold below €485 per ounce. For British investors, the price held above £328 per ounce.

"In the coming week gold will continue to remain a puppet to non-fundamental factors," reckons Wolfgang Wrzesniok-Rossbach for Heraeus, the German refining giant, "making a price-prognosis relatively difficult.

"But from a purely fundamental perspective, given the presently depressed physical demand, it seems to be a little overvalued."

Yesterday's festival of Pushya Nakshatra in north-west India "turned out to be less lucrative for jewelry shopowners than last year," reports Ahmedabad NewsOnline. Sales were down by nearly 75% from 2006, but "Pushya Nakshatra coincided with the festival of Diwali last year," notes Shantibhai Patel, secretary of the Ahmedabad Jewelers Association. "This time people were seen purchasing gold and silver coins, rather than jewelry, which led to a decline in sales figures."

Viewed longer term, strong demand from jewelry fabricators was reported during both of late June's short-lived dips below $650 per ounce. In late 2006, the gold price had to slip below $600 before Asian dealers recorded strong physical sales.

Buyers in India , the world's hungriest gold consumers, "are quite happy with gold at $650 an ounce," says Jonathan Barratt of Commodity Broking Services. He says the price of oil may break $77 per barrel, a fresh 11-month high – and gold has been moving in tandem with energy prices thanks to its traditional role as an inflation hedge.

"Summer months do not usually see much movement in the gold price and this season is unlikely to be much different," says the latest Metals Monthly from Fortis, produced by the Virtual Metals consultancy in London . "Even if pay talks in South Africa 's mining dispute reach deadlock and result in a strike, gold has traditionally been less sensitive to supply disruptions than most metals – and the lower price is playing its part in boosting physical demand. Turkey 's imports in June, when the price averaged a relatively low $656/oz, soared by 178%, year-on-year."

Besides Ben Bernanke's two-day testimony to the US Congress starting Weds – plus the minutes of the latest Fed meeting due Thurs – gold and currency traders will be studying today's Eurozone inflation numbers, recorded as expected at 1.9% year on year. Consumer price inflation in the UK for June is due tomorrow, followed by producer price inflation in the US at 13:30 BST. The all-important US consumer price inflation will be released on Weds.

"Overall conditions look friendly in the near term to a break towards $674 resistance," says today's technical note from Standard Bank. "At current levels, physical interest appears to be dwindling but has potential to return in force on any further market dips below $660."

By Adrian Ash
BullionVault.com

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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

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