Gold Uptrend Intact, Bullion Sentiment Buoyed by Inflation Fears

By: Ben_Traynor

WHOLESALE gold bullion prices held above $1770 an ounce Friday morning in London, a few Dollars below six-month highs hit earlier in the week, while stocks and commodities were also broadly flat ahead of a meeting between the leaders of Spain and Italy, with press reports suggesting plans are being discussed for a Spanish bailout.

Heading into the weekend, spot gold would make its fifth straight weekly gain if it closes above $1770 per ounce later today, while gold in Euros remained within 1% of last year's all-time high this morning.

"The large uptrend is still intact, and it is positive that gold has been able to hold onto recent gains," says the latest technical analysis note from bullion bank Scotia Mocatta.

"The long-term inflation outlook...is keeping gold sentiment buoyed," says one trader in Shanghai, referring to last week's Federal Reserve decision to begin open-ended quantitative easing.

Gold bullion holdings to back the world's biggest gold ETF SPDR Gold Shares (GLD) rose to a new 13-month high of 1308.4 tonnes yesterday.

Deutsche Bank Asset Management meantime reports growing interest in gold among its clients, who are "increasingly concerned" about inflation risks.

Silver bullion meantime fell to $34.63 an ounce this morning – slightly below last week's close.
The world's biggest silver ETF, iShare Silver Trust (SLV) saw its holdings hit a new 11-month high yesterday at over 9940 tonnes.

Chinese silver imports rose 304 tonnes last month, up nearly 12% from a month earlier but down 3.4% year-on-year, official Chinese customs data show.

"We still believe that domestic stockpiles [of silver in China] are extremely large when compared to the lackluster fabrication demand," says a note from Standard Bank, whose analysts highlighted the problem of Chinese silver stockpiles back in February.

"We do not expect Chinese fabrication demand for silver to improve any time soon."

European Union officials are in talks with Spain's government over conditions that might be imposed should Spain ask for a bailout, the Financial Times reports.

"It is a kind of 'proto-program', if such were needed," an EU official told the FT.

Spanish leaders are considering a freeze on pension payments and a sooner-than-anticipated raising of the retirement age in a bid to save an annual €4 billion, according to newswire Reuters.

A condition of the European Central Bank's new Outright Monetary Transactions program – which would see the ECB buy sovereign debt on the open market to reduce borrowing costs – is that beneficiary nations must already be in a bailout program and must be fulfilling agreed conditions such as meeting deficit targets.

Spain has already agreed to borrow up to €100 billion to fund the restructuring of its banking sector.

An independent stress test of Spanish banks is expected to show that between €50 billion and €60 billion will be needed, Reuters reports, raising the prospect that Spain could seek to use the remainder to fund the government and stave off the need for a formal sovereign bailout.

Spanish prime minister Mariano Rajoy is due to meet with Italian prime minister Mario Monti in Rome around lunchtime. Both countries saw their borrowing costs rise sharply in the summer, with benchmark 10-Year yields on Spanish government debt hitting new Euro-era highs in July.

Like Rajoy, Monti is reported to be reluctant to request a sovereign bailout.

"There won't be any nation that voluntarily, with a preemptive move, even if rationally justified, would go to an international body and say: ‘I give up my national sovereignty'," said Italian undersecretary of finance Gianfranco Polillo last night.

"I rule it out for Italy and for any other country."

Here in the UK, the government's deficit was smaller than expected last month, official figures published Friday show.

Investment managers holding UK government bonds meantime have said the British government can relax its austerity measures, according to a report by Bloomberg.

"Now that growth has continued to disappoint, there is a good case for higher spending in public-sector investment," says Michael Amey, London-based portfolio manager at world's biggest bond fund Pimco.

"Every government has to cut spending, but too many cuts may slow the economy," agrees Yoshiyuki Suzuki, head of fixed income at Fukoku Mutual Life Insurance in Tokyo.

In Vietnam meantime, the central bank-owned Saigon Jewelry Company began processing and rebranding the gold bars of other refiners yesterday, after the central bank handed it a monopoly on gold bullion production earlier this year.

AngloGold, the world's third-largest gold bullion producer, became the latest gold mining firm in South Africa to be hit by strike action late Thursday.

"The night shift embarked on an unprotected strike at Kopanang and the morning shift didn't go down either," said AngloGold spokesman Alan Fine.

The strike follows a series of stoppages that have hit platinum and gold mining operations in South Africa. These include protests at mines operated by Gold Fields and demonstrations at Lonmin's Marikana platinum mine in which 46 people have dies, including 34 shot dead by police in one incident.

"Both workers and government are seeking a greater share of the returns from mining, just as the mines themselves become more costly to run due to falling ore grades and rising energy costs," says the weekly commodities note from French investment bank Natixis.

World number one producer Barrick Gold meantime closed its Pierina mine in Peru for one day Thursday, after one person dies and four were injured in clashes between police and nearby villagers.

By Ben Traynor
BullionVault.com

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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.(c) BullionVault 2012

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