London Gold Market Report
from Ben Traynor
BullionVault
Friday 1 June 2012, 09:00 EDT
U.S. DOLLAR prices to buy gold climbed back above $1600 an ounce on Friday, after disappointing US jobs data was then followed by news of a slowdown in American manufacturing activity.
The ISM Manufacturing Index fell to 53.5 in May, down from 54.8 a month earlier (a figure above 50 indicates an expansion in manufacturing activity).
The ISM release followed several examples of disappointing manufacturing data from around the world, with signs of slowdown in China and ongoing contraction in the UK and the Eurozone.
Friday afternoon’s London gold Fix was $1606 per ounce, the first Fix above $1600 since May 8.
Earlier in the day, gold spiked immediately after the release of worse-than-expected US nonfarm jobs data.
The US economy added 69,000 nonagricultural private sector jobs in May, according to official data published Friday, compared with analysts’ forecasts for 150,000.
The US unemployment rate meantime ticked higher to 8.2% – up from 8.1% in April.
Gold’s jump wiped out its losses for the week. By Friday afternoon in London, prices to buy gold looked set for a 0.6% gain on where they started the week.
Silver also spiked higher following the US jobs news, climbing to $28.63 per ounce, and headed for a slight gain on the week by Friday afternoon in London.
“The larger trend [however] remains bearish,” says technical analyst Russell Browne at bullion bank Scotia Mocatta.
A day earlier, gold’s final London Fix of May 2012 was down 5.6% on April’s last Fix – the third monthly fall in a row by gold Fix prices. Spot gold meantime – which back on February 29 fell by $100 an ounce after the PM Fix – ended May by making fourth straight monthly loss in Dollar terms.
By London Fix prices, gold has not fallen four months in a row since summer 1999.
In contrast with gold, European stock markets fell following the nonfarms release, extending their losses from Friday morning’s trading.
Earlier in the day, German 10-year Bund yields fell to a fresh all-time low below 1.15%, while on the currency markets the Euro sank to its lowest level against the Dollar since June 2010.
Spain’s banking system meantime saw €97 billion of capital leave the country in the first three months of 2012, according to figures published Thursday evening by the Spanish central bank. The Spanish government, which this week saw its implied 10-Year borrowing costs breach 6.7% for the first time since November, is trying to raise €19 billion to rescue nationalized lender Bankia.
The International Monetary Fund yesterday denied rumors that Spain’s government has approached it for a bailout.
Over in Ireland, votes were being counted Friday following yesterday’s referendum on whether or not to ratify the European Union’s new fiscal treaty, which would impose limits of government borrowing.
“We are very, very confident [of a ‘Yes’ vote],” said Lucinda Creighton, Ireland’s European affairs minister.
Press reports suggest around half of those eligible to vote in the referendum actually did so.
In Greece meantime, the biggest pro-bailout party New Democracy leads second place Syriza in the opinion polls, with just over a fortnight to go until the June 17 elections, news agency Bloomberg reports.
Syriza’s leader Alexis Tsipras said Friday that the bailout agreement is a failure, reiterating that Syriza would reverse some of the Greek government reforms if elected, including privatizations and cuts to public sector wages.
“The [bailout] memorandum equals a return to the Drachma,” Tsipras added.
The Eurozone’s purchasing manager’s index for manufacturing, a survey indicator of whether the sector is expanding or contracting, fell from 45.9 in April to 45.1 last month, figures published Friday show. A PMI above 50 indicates sector expansion.
Germany’s PMI meantime fell to 45.2 in May – down from 46.2 a month earlier.
The Eurozone’s unemployment rate meantime remained at 11.0%.
On the currency markets, the Euro fell to a two-year low against the Dollar Friday morning, remaining below $1.24.
European Central Bank president Mario Draghi warned Thursday that the current Eurozone structure is “unsustainable”.
“At the moment, Europe and downside risks to the Euro are the problem for gold,” says Michael Lewis, head of commodities research at Deutsche Bank.
“Dollar strength is going to be the big problem over the next few weeks.”
The US Dollar Index, which measures the currency’s strength against a basket of other currencies, hit its highest level since August 2010 this morning.
Here in the UK, manufacturing activity fell into contraction last month. May’s manufacturing PMI was 45.9, compared to 50.2 in April. The consensus forecast among analysts ahead of Friday’s PMI publication was for a figure just below 50.
The disappointing UK PMI figure “has increased dramatically the likelihood of the [Bank of England] announcing more quantitative easing next Thursday,” reckons Deutsche Bank’s chief UK economist George Buckley.
Manufacturing activity also slowed in China, the world’s largest source of demand to buy gold in the first three months of 2012.
May’s official PMI figure was 50.4, down from 53.3 in April. HSBC’s PMI meantime, which looks at smaller Chinese firms, showed ongoing manufacturing contraction, falling to 48.4 from 48.7.
In India meantime, traditionally the world’s biggest gold buying nation, gold demand for 2012 will fall by 4% by volume compared to last year – but will be 4% up in value terms – according to a report published by researchers at Morgan Stanley.
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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 2011
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