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London Gold Market Report

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By Andrey Dashkov, Casey Research

In last week's Metals, Mining, and Money from Casey Research, Jeff Clark estimated that given the magnitude of the correction that started last September, it may take until May 2012 for gold to reach a new high. Let's take a look at how long it may take for silver to rebound.

It's a commonly known fact that silver is more volatile than gold. Already in this decade, silver has risen by a factor of 12 from its ten-year low ($48.70 vs. $4.07), while gold has seen about a sevenfold climb ($255.95 vs. $1,895).

This volatility – as you'll see in a minute – holds for corrections as well. On average, silver's retreats have been deeper and longer than gold's. The three big gold corrections we looked at last week averaged 22.8%. Take a look at the three biggest for silver, along with how long it's taken to recover and establish new highs.

The three biggest silver corrections in the current bull market average to 42.1%.

Our recent correction is the second biggest on record since 2001, but what really makes it stand out is the duration. The 2004 and 2006 declines took only five and four weeks respectively to reach their low points. And it was 31 weeks after the crash of 2008 that silver bottomed. Our current decline, measured from the peak reached on April 28, 2011 to its December 29, 2011 low, spans 35 weeks… quite the determined downtrend.

It also takes silver longer to recover than gold: gold's three biggest corrections required an average of 57 weeks and 6 days to regain their old highs, while it's taken silver's three biggest falls an average of 98 weeks and 4 days to catch up.

So how long will it take to recover from the 2011 slump? We don't know the future, of course, but the current correction is close to the average of the three in the chart, so let's apply the average recovery time to our current situation. The average 42.1% correction took 98 weeks and 4 days to recover; using the same ratio, a 46.3% correction would take 108 weeks and 3 days. Counting from the previous peak of April 28, 2011, we wouldn't break the $48.70 high until May 26, 2013 (based on London PM Fix prices).

It shouldn't come as a surprise that silver will take longer to return to its old high than what we found with gold in last week's article. Why? Half of silver's use is industrial, so a weak economy can drag down its demand. We certainly saw that in 2008.

And an exact date is pure conjecture, of course, and ignores fundamental factors that directly influence the price. 2011 is not 2008. In fact, we've already seen an interesting shift in investment activity in both gold and silver markets. The Silver Institute pointed out in a recent market report that "investor activity" was the biggest contributing factor to both last April's rally as well as September's selloff. Meanwhile, demand for physical metal has not only held firm but was projected by GFMS to reach a new record high in 2011.

Investment demand is rooted in the metal's monetary characteristics. It's not a stretch to say that we expect silver to regain its currency appeal soon, given the amount of worldwide fiat currency destruction. This will be perhaps the strongest catalyst for prices going forward. We wouldn't want to be without any silver.

If there's anything that sticks out from this bird's-eye view of the past ten years of data, it's that corrections are normal. And just as obvious is the fact that corrections end.

As with gold, the silver bull market is far from over, regardless of any weakness we may see in the near term. Don't be the impatient investor who gives up too early. And trying to time the market for a short-term profit shouldn't be the strategy in the midst of a long-term bull market. Instead, keep silver's fundamentals in mind: its industrial uses are growing and, like gold, silver is money.

That said, we believe that the window for buying silver at $30 won't be open for too long. The profit you someday realize from silver will be made buying now, when the price is low.

[Precious metals and precious metal stocks can be a solid way to store wealth, but only if you invest wisely. Don't let yourself be robbed.]

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London Gold Market Report
from Ben Traynor
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Monday 16 April 2012, 08:00 EDT

"Euro Crisis Back" as Spanish Yields Spark "Renewed Market Panic" while "Less Gold Fever" Seen in China than Last Year

WHOLESALE gold bullion prices traded just below $1650 an ounce for most of Monday morning's London session – well within the past month's range – as European stock markets edged higher while commodities fell.

The Euro meantime sank to a two-month low against the Dollar, as investors turned their attention to rising Spanish government borrowing costs.

On China's Shanghai Gold Exchange, contracts equivalent to around 7.3 tonnes of gold bullion changed hands in Monday's trading.

"Current levels are by no means excessively weak," says a note from investment bank UBS, "but the fact that average daily turnover sits at just about half of the 18 tonne all-time high seen last year is in itself confirmation that there is less gold fever in China this year versus last."

Authorities in Beijing meantime have widened the Yuan's trading band against the Dollar from a 0.5% maximum daily move to 1%.

Silver bullion fells to $31.22 per ounce – close to four month lows – before recovering some ground in Monday morning's London trading.

"The key downside risks for silver," says a note from Morgan Stanley, "are that the weaker economic outlook in 2012 and 2013 will cut fabrication demand, but not enough to take prices back to levels that would deter anticipated strong mine production growth and a rising surplus."

Sovereign debt stresses in the Eurozone are expected to dominate this week's International Monetary Fund meeting, where European officials are expected to ask the IMF to expand its lending capacity to combat a fresh potential crisis, newswire Bloomberg reports.

At February's G20 meeting, European leaders were told Europe needed to do more before non-European nations would consider a bigger IMF contribution. There has since been agreement to increase the size of the Eurozone's 'firewall' to €800 billion, although only €500 billion will be available for fresh rescue programs.

"I think Europe has done its part," European Central Bank board member Joerg Asmussen told the Wall Street Journal over the weekend.

"Now you would expect other IMF shareholders to come forward and make their contributions to increasing IMF resources."

Benchmark yields on 10-Year Spanish government bonds rose above 6% Monday morning – a level breached last week for the first time since December.

"After three months that were calmer than expected, the Euro crisis is back," says Holger Schmieding, London-based chief economist at Berenberg Bank.

"The speed of the recent surge in yields has elements of a renewed market panic."

Spain is due to auction 2-Year and 10-Year bonds this Thursday.

The ECB "should step up purchases of [government] bonds" said Jaime Garcia-Legaz, a deputy minister in Spain's Economics Ministry, speaking last week.

The ECB began buying distressed government debt on the secondary market in 2010 under its Securities Markets Programme. It reactivated the SMP last August when Spanish and Italian yields spiked.

Spanish 10-Year bond yields hit 6.7% last November – while Italian 10-Year yields breached 7%.
Here in the UK, economic growth will be only 0.4% this year – half the official projected rate used by the government – according to a report published Monday by the Ernst & Young ITEM Club, a forecasting arm of the accountancy firm.

The report cites "corporate cash piles" worth an estimated 50% of GDP as one reason the economy is expected to "stall" in 2012.

"Business investment has picked up nicely in the US but UK companies remain extremely risk averse," says Peter Spencer, chief economic advisor to the ITEM Club.

"[This] is sapping strength from the economy...until these companies stop stashing the cash and start increasing levels of investment and dividends, the economy will remain on the critical list."

Over in New York, the so-called speculative net long position of gold futures and options traders on the Comex – measured as the difference between bullish and bearish contracts – fell for the second week running in the week ended last Tuesday.

The spec net long dropped 3.9%, Commodity Futures Trading Commission data published late Friday show.

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London Gold Market Report
from Ben Traynor
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Wednesday 18 April 2012, 08:30 EDT


"Waning Enthusiasm" for Precious Metals as Prices Drift, Bank of England says "Uncomfortably" High Inflation "Might Be Persistent"

SPOT MARKET gold bullion prices drifted lower in Wednesday morning's London trading, hitting $1640 an ounce ahead of US trading – a 1.1% fall on the week so far – while stock markets also fell and commodities were broadly flat.

Silver bullion fell as low as $31.52 per ounce – broadly in line with where it started the week.
UK government bond prices dipped – while German bunds gained as Eurozone concerns continued to focus on Spain.

"This morning, we've seen [precious metals] succumb to waning investor enthusiasm," says Marc Ground, commodities strategist at Standard Bank.

"People won't want to commit too much at this point," agrees Ronald Leung, a dealer in physical bullion at Lee Cheong Gold Dealers in Hong Kong.

"There is some [gold] buying when prices fall to the $1630-$1640 level, but the volume shrinks when prices rebound to $1660-$1670."

The daily average volume of gold bullion transferred between parties by clearing members of the London Bullion Market Association rose to 622 tonnes last month, a 3.8% gain on February, according to LBMA figures published Tuesday.

"The value of transfers [however] was broadly unchanged a $33.8 billion," the LBMA reports, "reflecting the fact that higher trading activity was offset by the fall in the gold price".

On an annual basis, the daily average volume of gold transferred was up 6.4% on March 2011.
Transfers of silver bullion meantime averaged 4889 tonnes – a 1.8% fall on February.

European stock markets traded lower Wednesday morning, with the FTSE in London down around 0.5% and Germany's DAX off 1% by lunchtime. The falls are in contrast with gains seen in Asia and Tuesday's US session.

These rallies followed publication Tuesday of International Monetary Fund forecasts showing the IMF has revised upwards its expectations for global economic growth, though it says it still expects the Eurozone's economy to shrink.

Yields on 10-Year Spanish government bonds eased slightly to 5.8% Wednesday morning, ahead of tomorrow's auction of 2-Year and 10-Year debt.

Analysts are concerned however that Spain's struggling economy could threaten a banking crisis and compromise the government's fiscal position.

"If you look ahead, let's say the next six months, I would not be surprised if [Spanish banks] have to get some kind of European support," says Carsten Brzeski, Brussels-based senior economist at ING, adding that banks would need funds from the European Financial Stability Facility, the Eurozone's temporary bailout fund set up in 2010.

The number of non-performing loans on Spanish bank balance sheets "will have to rise when you take into account the unemployment rate and what's happening with the economy," says Andrew Bosomworth, head of portfolio management at world's largest bond fund Pimco in Munich.

"One of our concerns in Spain is to what extent contingent liabilities could pass to the central government."

In New York, hedge fund boss John Paulson – whose firm offers investors gold bullion denominated funds – has told investors he is shorting German bunds because he expects deterioration in the Eurozone will end up affecting Germany's creditworthiness, the Financial Times reports.

Here in the UK, "elevated inflation might be more persistent" than the Bank of England's Monetary Policy Committee previously expected, according to minutes published Wednesday of the MPC meeting earlier this month.

Only one MPC member voted to increase quantitative easing – down from two members last month.

The publication of the minutes – as well as that of a speech by MPC member Paul Tucker in which he describes inflation as "uncomfortably above target" – was followed by the Pound rallying against the Dollar.

The gold price in Sterling fell to £1026 per ounce by lunchtime in London – 1.9% down on where it ended last week.

UK unemployment meantime fell to 8.3% in February – down from 8.4% a month earlier – according to the International Labour Organization's 3-month unemployment data published this morning.

The majority of reserve managers at the world's central banks consider gold a more attractive investment than last year – while they are wary of Euro exposure – according to a new survey by Central Banking Publications.

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London Gold Market Report
from Ben Traynor
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Friday 20 April 2012, 08:00 EDT


Gold "Needs to Reclaim $1700" for Renewed Buying, with Breach of $1600 "Expected to Cause Liquidation"

SPOT MARKET gold prices traded as low as $1640 an ounce – less than 1% off the previous day's high – during Friday morning's relatively flat London session.

European stock markets were also broadly flat, as were commodities, while government bond prices ticked lower.

"Overall, the price action since the February high of $1790 has been quite weak," says the latest technical analysis from gold bullion dealing bank Scotia Mocatta.

"We would expect liquidation selling of gold below $1600. We do not see fresh buying emerge until we can reclaim the $1700 level."

"Gold prices have been well supported since 2009 by the rapid expansion of central bank liquidity," adds the latest research note from commodities analysts at French investment bank Natixis.

"Nevertheless, with the gradual recovery in the US economy beginning to call into question the need for additional quantitative easing from the Fed, gold prices have failed to improve upon their September 2011 peak."

US Federal Reserve policymakers are due to announce their latest monetary policy decisions next week.

Heading towards the weekend, Gold in Dollars was down around 0.8% on last Friday's close by lunchtime today in London – while the gold price in Euros was off 1.8%.

Silver prices meantime hovered around $31.85 per ounce Friday morning – 0.9% up on the week.
Data published Thursday by the Silver Institute show strong growth in physical silver investment last year – although other forms of investment, such as ETFs, saw declines.

The International Monetary Fund is aiming to "increase the pot" of money available to respond to stresses caused by the Eurozone crisis, IMF managing director Christine Lagarde told Bloomberg Thursday, ahead of today's G20 gathering as part of the IMF Spring Meetings in Washington.

A total of $320 billion in additional contributions has so far been pledged, Lagarde said.

"I have currently commitments from the Eurozone, Japan, from the Nordic countries, from Switzerland," she added.

"[This] is not the final ask...it is a step on the way. We are looking for a much more critical mass before the end of the week."

Non Eurozone leaders have repeatedly urged European governments to do more to combat the crisis, including reducing deficits. There are also calls for the IMF to adjust member countries' quotas – which determine their maximum level of contribution, voting power and access to IMF loans – to recognize the greater importance of emerging economies.

"Quote reforms should not be delayed," said India's finance minister Pranab Mukherjee.

"We are not ready to set a figure [on IMF contributions]," added Brazil's finance minister Guido Mantega Thursday.

"There are preconditions that have not been fulfilled by [European] countries...some countries are not very enthusiastic about the IMF reforms. They are much more enthusiastic about asking for money rather than moving forward with the quota reform."

"At this critical juncture," said Bank of Japan governor Masaaki Shirakawa, "we need aggressive monetary easing. That's without question."

Here in the UK, Bank of England Monetary Policy Committee member Adam Posen has denied he was ever "an automatic vote" for more quantitative easing.

At this month's MPC meeting Posen voted to keep asset purchases at their current level – having voted to raise QE at 15 of the previous 18 meetings – minutes published Wednesday show.

"When I forecast [in March 2011] 1.5% inflation and trending down for summer 2012," writes Posen on the Independent website, that was when some MPC members were voting to tighten policy and no one else was voting for additional ease."

"Of course," he adds, "the inflation forecast is higher now than it was then precisely because rightly we did more QE."

UK consumer price inflation was 3.5% last month – up from 3.4% in February. Posen told London's Evening Standard Thursday that the MPC is taking this uptick in inflation "very seriously".

UK retail sales meantime rose 3.3% in the year to March – a jump from February's 1.0% year-on-year figure – according to official data published Friday.

The Pound rose to its highest level since November against the Dollar following the retail sales release – while Sterling gold prices dropped 0.7% to £1018 an ounce, close to four-month lows.

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London Gold Market Report
from Ben Traynor
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Monday 23 April 2012, 07:45 EDT


Gold, Stocks and Euro All Down after China Manufacturing News, Bullion Refiners "Stocking Up" for Europe but Concerns Over Liquidity "Cap Upside" for Gold

PRICES TO buy gold bullion on the wholesale market dropped to $1630 an ounce during Monday morning's London session – a 2.3% drop from where they started the month – while stock markets and industrial commodities also traded lower following the release of preliminary Chinese manufacturing data.

"Gold remains in a short-term bear channel," say technical analysts at bullion bank Scotia Mocatta.

"We would expect a test of support from the long-term uptrend...[which] comes in around $1600."

Silver bullion dropped to near 3-month lows, hitting $31.09 per ounce ahead of the US session.
Ahead of the Federal Reserve meeting which starts tomorrow, the US Dollar gained against the Euro, despite news that the International Monetary Fund has almost doubled its effective crisis-lending capacity.

European stock markets sold off heavily, with the UK's FTSE down 1.7% by lunchtime, and Germany's DAX off 2.7%.

Activity in China's manufacturing sector has continued to contract this month, according to data published Monday. The HSBC purchasing managers index (PMI) for this month came in at 49.1 – up from 48.3 for March (a figure below 50 indicates sector contraction).

The slight rise in the PMI figure "suggests that the earlier easing measures have started to work and hence should ease concerns of a sharp growth slowdown," according to HSBC's Chief Economist for China Qu Hongbin.

"The pace of both output and demand growth [however] remains at a low level in an historical context and the job market is under pressure. This calls for additional easing measures in the coming months."

The international community has pledged a total of $430 billion in additional IMF contributions – a move that would almost double the Fund's lending capacity – IMF managing director Christine Lagarde revealed at the IMF's Spring Meetings, which ended at the weekend. The US however declined to increase its contribution.

IMF money will not be earmarked for any particular country, an official statement said, although its latest World Economic Outlook last week carried a section on sovereign funding stresses in the Eurozone.

The report advises that the European Central Bank "should lower its policy rate while continuing to use unconventional policies to address banks' funding and liquidity problems."

"None of the advice of the IMF has been discussed by the Governing Council," said ECB president Mario Draghi on Friday.

The government debt of Eurozone nations rose to a Euro era high of 87.2% of gross domestic product last year – up from 85.3% a year earlier – according to official European Union data published Monday.

Reports on Monday morning suggested Netherlands prime minister Mark Rutte was on the verge of resignation, after the Freedom Party walked out of talks on austerity measures and said it was ending its agreement to support Rutte's minority government. The Netherlands is expected to record a government deficit of 4.6% of GDP this year, compared to a target of 3%.

Over in France meantime, Socialist Party candidate François Hollande led the first round of the French presidential election, the results of which were announced Sunday. Hollande received 28.6% of the vote, compared to 27.1% received by incumbent Nicolas Sarkozy. Marine Le Pen, leader of Front National, came third with 18.1%.

"The first round may offer a glimmer of hope for Sarkozy," says Holger Schmieding, chief economist at Berenberg Bank.

"But it also entails a risk that he could pander to right-wing sentiment on European issues in the next two weeks. Stronger calls for a 'growth mandate for the ECB' and the like may not go down well in Berlin and Frankfurt."

Calls for economic growth as well as price stability to form part of the ECB's mandate have become a campaign issue in the French election, and form part of Hollande's manifesto.

Gold bullion refiners have been stocking up on small gold bars popular with European gold buyers, in preparation for an escalation in the Eurozone crisis, according to John Dizard at the Financial Times.

"Somewhere near Geneva airport," writes Dizard, referring to a major hub of the gold refining industry, "candles are being burned in front of the image of François Hollande. I think that simple faith will be rewarded soon."

However, "concerns over Europe are capping [gold's] upside," says Tobias Merath, head of global commodity research at Credit Suisse.

"The situation in Europe has the potential to lead to deteriorating liquidity conditions...as we saw at the end of last year, gold is a hedge against all kinds of crises, but not against a liquidity problem, when people are liquidating assets to raise much-needed cash. They also sell gold in this environment."

Over in India meantime gold dealers have reported a pickup in business ahead of tomorrow's Akshaya Tritiya festival – traditionally seen as an auspicious day to buy gold.

On New York's Comext exchange meantime, the difference between bullish and bearish contracts held by noncommercial gold futures and options traders – the so-called speculative net long – rose 2.2% in the week ended last Tuesday, according to Commodity Futures Trading Commission data published late Friday.

Although spec long positions fell by the equivalent of almost 11 tonnes of gold bullion, noncommercial Comex traders reduced their aggregate short exposure by nearly double that, with short positions falling by the equivalent of 20.7 tonnes.

"While investors are not overly bullish," says Standard Bank commodities strategist Marc Ground, "the drop in short positions is somewhat encouraging as a sign that investors are cautious of running too short."

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London Gold Market Report
from Ben Traynor
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Friday 27 April 2012, 08.00 EDT


Gold "Caught in Range", Europe "Heading for Suicide by Austerity" as S&P Downgrades Spain

SPOT MARKET prices to buy gold remained steady around $1650 an ounce during Friday morning's London trading – well within their range from mid-March – as stock markets and commodity prices were also flat and US Treasury bonds gained following a credit ratings downgrade for Spain.

Heading into the weekend, gold looked set to record its seventh successive Friday PM gold fix between $1600 and $1700 an ounce.

Prices to buy silver meantime held above $31 an ounce this morning after rallying in Thursday's US trading – though they remained 2% down on the week by Friday lunchtime in London.

"Our concern with silver," says the latest precious metals note from investment bank Natixis, "as with gold, is that when global markets begin to return to a greater degree of normality, the outflow from investors may be substantially larger than the inflow from industrial or jewelry demand, which could lead to substantial weakness in silver and gold prices."

Ratings agency Standard & Poor's last night downgraded Spain two notches from A to BBB+, adding that the outlook for the sovereign is 'negative'.

"The [Spanish] government has committed to a target of 5.3% of GDP in 2012 and 3.0% in 2013," said an S&P statement.

"In our opinion, these targets are currently unlikely to be met given the economic and financial environment. We forecast a budget deficit of 6.2% of GDP in 2012 and 4.8% in 2013."

Yields on 10-Year Spanish government bonds rose to touch 6% this morning, but by Friday lunchtime actually looked set to close slightly down on the week.

German 10-Year bund yields meantime fell as low as 1.65% Friday morning, close to record lows hit earlier in the week.

Despite the Spanish downgrade, European stock markets edged higher this morning, although the Euro Stoxx 50 index of the leading Eurozone blue-chip firms remains more-or-less where it was six months ago.

"We are probably going to see more downgrades from other rating agencies," reckons Philippe Gijsels, Brussels-based head of research at BNP Paribas Fortis Global Markets.

"You will continue to see this consolidation phase [in stocks] for some more time as the newsflow is likely to be predominantly negative."

"Europe is headed to a suicide," said Nobel Prize-winning economist Joseph Stiglitz Thursday.

"There has never been any successful austerity program in any large country...the European approach definitely is the least promising."

French Socialist Party leader Francois Hollande, who received the highest share of the vote in last Sunday's French presidential election first round, called this week for European economic policies to prioritize growth rather than austerity, adding that he would hold a "firm, friendly discussion" with German chancellor Angela Merkel if elected.

"It's not for Germany to decide for the rest of Europe," Hollande told French television last night.
Earlier in the week, Hollande said the European Stability Mechanism, the permanent bailout fund due to come in in July, should be given "the necessary firepower" by the European Central Bank.

"I've always campaigned for the statute of the ECB to be revised," Hollande said.

"I know Germany's reticence, but it would be better for the ECB to be able to intervene as the first and last resort for states."

"Herr Hollande has misunderstood the problems in his country and in other Euro area countries," Michael Meister, a member of Merkel's CDU party, told Bloomberg Friday.

"If one throws money into a country with structural problems that won't solve those structural problems...the aim is to gain control over excessive debt, not increase it."

"A growth pact has to be focused on structural reforms," agreed Spain's economy minister Luis de Guindos yesterday.

"I do not see that the growth pact should involve any sort of fiscal boost or stimulus."

The Euro meantime rallied against the Dollar in Friday morning's European trading, climbing back above $1.32.

"The Euro/Dollar has held above $1.30 for some time, in the $1.30-$1.32 range, which coincides with gold also being caught in a range," says Robin Bhar, head of metals research at Societe Generale.

"If the Eurozone crisis deepens and we see the Euro/Dollar correct below $1.30, that could give a bit of a lift to gold."

The Pound also rallied against the Dollar Friday, hitting breaking through $1.62 to hit its highest level since last September.

Prices to buy gold in Sterling fell to £1019 an ounce – 0.6% below yesterday's high for the week.
Earlier on Friday, the Bank of Japan announced a further ¥5 trillion ($62 billion) in quantitative easing on Friday, while also leaving interest rates on hold at 0.1%.

Over in China, the Shanghai Futures Exchange said Friday it is cutting its commission on various gold futures contracts in an effort to support liquidity. Commissions on gold trading will fall from 30 Yuan per lot to 20 Yuan per lot.

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London Gold Market Report
from Ben Traynor
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Monday 30 April 2012, 08.00 EDT


Physical Bullion Demand Giving "No Support", S&P Downgrades Spanish Banks, French and German Politicians "Moving to the Right"

SPOT MARKET gold bullion prices held above $1660 an ounce during Monday's morning trading London – holding on to gains from last week of 1.1% – while stock markets ticked lower, commodities were broadly flat and US and German government bonds gained as Spain continued to generate headlines.

"On the physical front [however] things were looking not as one might have hoped for [last week]", says a note from Swiss bullion refiner MKS.

"There's no support from the physical market," one Hong Kong dealer told newswire Reuters this morning.

Prices for silver bullion fell this morning to $31.10 per ounce – 0.6% down on Friday's close.

Gold bullion prices in Euros meantime hit their highest level in almost two weeks this morning, touching €40,474 per kilo (€1259 per ounce) as the Dollar made up some lost ground against the Euro.

Earlier on Monday, the US Dollar Index – which measures the Dollar's strength against a basket of six other currencies – fell to its lowest level in almost a month, continuing last week's slide.

The Dollar's slide was compounded on Friday after preliminary gross domestic product data showed the US economy had slowed by more than expected in the first quarter of 2012, leading to speculation that the Federal Reserve might embark on a third round of quantitative easing.

"We don't know whether there will be QE3," the Hong Kong dealer said.

"If the economic performance continues to be good, then there will be a diminishing prospect for QE."

"In the short run, you can have one or two weeks for the market to get excited about QE," adds Dominic Schnider, Singapore-based head of commodity research at UBS Wealth management.

"If you look for QE, we are going to have a situation where prices will trend higher."

The Spanish government is in talks to set up a "bad bank" scheme, which would see troublesome property loans taken of banks' books and transferred to new asset management companies, the Financial Times reports.

Spanish GDP meantime fell by 0.3% in the first quarter of the year, according to official data published Monday. This is less than the 0.4% forecast by the Bank of Spain last week.

The government in Madrid forecasts that Spain's economy will contract by 1.7% in 2012, before growing 0.2% next year. The government has set a deficit-to-GDP target of 5.3% for this year, and 3% for 2013.

By contrast, ratings agency Standard & Poor's – which last week downgraded Spain's sovereign rating from A to BBB+ – said last week it expects negative growth both this year and next, with the deficit-to-GDP ratio hitting 6.2% this year and 4.8% next.

"It's likely [Spain's government will] have to create more fiscal tightening," says Citi economist Guillaume Menuet.

"That's going to be counterproductive."

S&P followed the sovereign downgrade on Monday by taking negative rating actions on 16 Spanish banks. Several banks had their debt ratings cut, among them Santander, while others were placed on Credi****ch negative, a move which often precedes a downgrade.

Despite the downgrades, Spanish 10-Year bond yields remained below 6% this morning, a level they breached for the first time in the Euro era last July, and above which they have traded at several points over the last month.

In France meantime, incumbent president Nicolas Sarkozy has closed the gap on his Socialist Party opponent Francois Hollande, according to a poll published Monday.

The Ipsos poll, for which voters were surveyed on Friday and Saturday, shows Sarkozy still lags Hollande, with only 47% of the vote ahead of this Sunday's runoff.

"Sarkozy has moved further to the right," says the Wall Street Journal, "repeatedly underlining his strong line on immigration and a pledge to strengthen France's borders in an attempt to pick up the first round share of almost 18% achieved by Front National's Marine Le Pen."

"Austerity alone won't help cut debt," Hollande told his supporters at a rally yesterday.

"The head of the [European Central Bank] can also see [this]. They are starting to hear what we are saying."

German chancellor Angela Merkel however said at the weekend "there will be no new negotiations on the fiscal pact", referring to the Fiscal Stability Treaty agreed by 25 of the 27 European Union members, which states they will seek to bring their budgets into balance or surplus, with counter measures being triggered should they miss agreed targets.

Over in Greece, where voters are also due to go to the polls this Sunday, the Golden Dawn party – whose leader has been filmed making a fascist salute – may be set to enter parliament for the first time, Bloomberg reports.

In New York meantime, the difference between bullish and bearish contracts held by noncommercial gold futures and options traders on the Comex – the so-called speculative net long – fell 5% in the week ended last Tuesday, according to Commodity Futures Trading Commission data published late Friday.

Long positions fell by the equivalent of 9.4 tonnes of gold bullion, while at the same time short positions rose by the equivalent of 13.6 tonnes.

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London Gold Market Report
from Adrian Ash
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Thurs 3 May, 08:50 EST

Gold "Lackluster" in "Calm Before Storm" as Record-High Rupee Prices Boost Indian Speculation, Dent Physical Demand

THE PRICE OF GOLD in wholesale trading slipped to a new 1-week low at $1640 per ounce in London on Thursdayb as the US Dollar rose and crude oil slipped again.

Ahead of Friday's much-anticipated US Non-Farm Payrolls report for April, weekly data showed a fall in the number of jobless benefit claimants.

Spain meantime sold €1.6 billion of new 3- and 5-year government debt, paying 1.4 percentage points more in interest than at the last time of asking.

A sale of €5 billion in new government debt in France, where current president Sarkozy looked set to lose this weekend's election to Socialist candidate Hollande, meantime drew a greater excess of investor demand than at the last sale in April, with interest rates falling slightly on 9- and 10-year debt.

The Euro held at $1.3130 – right in the middle of the last month's tight 2.5¢ range.

With trading volume now lower for longer than any time since late 2007, US stock market futures pointed 0.2% higher after the Dow Jones Industrial Average yesterday slipped back from 4-year highs.

Slipping in line with the gold price, silver fell back to $30.40 per ounce.

"In this lackluster environment, it seems like the gold bullion market is in need of more than just resilience," says a note from Swiss refining and finance group MKS.

"[The gold price] has FLAT LINED on a closing basis," says the latest technical analysis from Russell Browne at Scotia Mocatta in New York, "staying glued between 1635 and 1670 over the past month.

"This sideways consolidation is the calm prior to the next storm...The long-term bullish trend line comes in near 1630 on daily chart."

Over in India in contrast – the world's #1 gold consuming nation – "Gold traders have extended their positions in futures market as prices of the precious metal in spot market touched an all-time high," reports the Economic Times.

Touching INR 29,690 per 10 grams today, the gold price for Indian wholesalers has now recovered 2012's early 10% fall to reach a series of fresh all-time highs this week.

Amid a wave of strikes and protests by Indian jewellers against this year's duty and tax rises, last month's Akshaya Tritiya festival failed to stoke consumer demand, says the Bombay Bullion Association, with gold bullion imports falling to just 30 tonnes from April 2011's level of 90 tonnes.

Helping gold rise, the Rupee fell further again on the FX market Thursday, extending this week's drop vs. the US Dollar to more than 1% and erasing the last of 2012's rally so far.

"The financing of the current account deficit will continue to pose a major challenge," the Reserve Bank of India recently noted in a policy statement.

"Lot of new positions has been created in [Indian gold ftures ] after traders noticed sharp rise," Money Life quotes Badruddin Khan, researcher at Angel Broking & Commodities.

"The momentum is likely to be continued with a back-up of Dollar appreciation."

Back in Europe, where the European Central Bank today left its key interest rate unchanged at 1.0% for the sixth month running, factory-gate inflation in the 17-nation Eurozone slipped to 3.3% per year in April, new data showed.

Here in the UK, where the ruling coalition's Conservative and Liberal Democrat parties were both expecting "dismal" results in local council elections on Thursday, house prices showed a near 1% annual slip on the Nationwide index.

In London, precious metals consultancy GFMS – now part of the Thomson Reuters news group – said the surplus of available metal over demand rose sharply in both platinum and palladium in 2011, thanks to stockpile sales and weak auto demand, especially in Europe.

Silver bullion stockpiles yesterday retreated further on Wednesday from this week's 25-year record highs, with the withdrawal of half-a-million ounces of "eligible" metal – which qualifies for settlement in Comex futures, but isn't made available by the owner – taken out of approved depository storage.

Adrian Ash
BullionVault

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London Gold Market Report
from Ben Traynor
BullionVault
Wednesday 9 May 2012, 08:00 EDT

"Bearish" Gold Hits 4-Month Low as Markets Fear Greek "Knock-On Effects"

SPOT MARKET gold bullion prices fell to their lowest level in four months during Wednesday morning's London trading, hitting $1581 an ounce – 3.7% down on the week so far – while European stock markets and commodities also fell and US Treasuries gained, with Greek uncertainty continuing to cast a shadow.

A day earlier, gold fell below $1600 for the first time since early January.

"Gold seemed to know only one direction today – down," says Tuesday's note from Swiss precious metals group MKS.

"The bearish close opens up a full retracement to the December low of $1522," adds the latest technical analysis from bullion bank Scotia Mocatta.

Silver bullion fell to $28.69 per ounce – also a four-month low, and 5.6% down on last week's close.

On the currency markets, the Euro failed to regain $1.30, after falling back through that level yesterday having breached it on Monday for the first time since February.

Sterling meantime hit its highest level since August 2009 on a trade-weighted basis. The stronger Pound saw Sterling gold prices drop to £982 per ounce on Wednesday, their lowest level since last July.

On the New York Comex, open interest in gold futures trading rose to the equivalent of 1312.5 tonnes yesterday – up 2.4% on Tuesday last week – though it remains broadly in the middle of its range for the last five years.

It will not be known however what proportion of these positions were long and short until the Commodity Futures Trading Commission publishes its weekly Commitments of Traders report on Friday.

The volume of gold bullion held by the world's biggest gold ETF, SPDR Gold Trust (GLD), remained unchanged Tuesday from a day earlier at just under 1275 tonnes.

GLD volumes did though spike higher yesterday, more than doubling from a day earlier to 17.8 million shares – although Monday's volume was towards the lower end of the recent range.

The largest volume for GLD trading this year was 44 million on February 29, when gold fell $100 an ounce following Federal Reserve chairman Ben Bernanke's appearance before Congress.

Alexis Tsipras , the leader of Greece's left wing Syriza, which came second in Sunday's election, will continue his efforts to form a government today, according to press reports.

The mandate to form a government passed to Tsipras after first-placed New Democracy was unable to form a coalition. The Syriza leader has outline a five-point plan which includes cancelling the terms of Greece's bailout, suspending service payments on public debt, and investigating Greece's banking sector.

"Voters [on Sunday] rejected the barbarous policies in the bailout deal," said Tsipras Tuesday.

"They abandoned the parties that support it, effectively abolishing plans for [public sector] sackings and additional spending cuts...the popular verdict clearly renders the bailout deal invalid."

Tsipras is today due to meet the leaders of New Democracy and third-placed Pasok – former coalition partners that backed Greece's latest bailout and who both saw their shares of the vote fall on Sunday.

Many analysts, however, say they do not believe Tsipras will gain the agreements he needs to form a government.

"Mr. Tsipras asked me to put my signature to the destruction of Greece," said New Democracy leader Antonis Samaras on Tuesday.

"I will not do this. The country cannot afford to play with fire."

Should Tsipras fail to form a government, the mandate would pass to former Greek finance minister and Pasok leader Evangelos Venizelos.

"The Greek people asked for two things," said Venizelos Tuesday.

"For Greece to stay safely in Europe and the Euro and at the same time to seek the best possible change in [bailout] terms so that citizens and growth can be helped."

"Greece needs to be aware," warned European Central Bank executive board member Joerg Asmussen Tuesday, "that there is no alternative to the agreed reform program if it wants to remain a member of the Eurozone."

"A Greek return to the polls in mid-June looks increasingly likely," says Malcolm Barr, London-based economist at JPMorgan Chase.

"There is little doubt that the drop in support for New Democracy and Pasok has raised the probability of an eventual Euro exit."

"Greece in itself isn't a big issue," adds Adrian Cattley, European equity strategist at Citi.
"What does matter of course is the knock-on effects and contagion fears and what that would mean for the wider market."

Here in the UK, prime minister David Cameron described the Euro as "a project in transition" in a newspaper interview published Wednesday.

"There's nowhere in the world that has a single currency without having more of a single government," said Cameron, although he added that "all these countries have to make their own choices" and that the Eurozone project "could go in a number of different ways".

Spain's government will tell the country's banks to set aside an additional €35 billion as provision against loans made to the construction sector, newswire Reuters reports.

Ratings agency Moody's meantime will begin cutting the credit ratings of over 100 banks this month, which could increase their funding costs and force them to reduce lending, according to Bloomberg.

China meantime has been buying oil from Iran and paying with Yuan and gold bullion, according to the Wall Street Journal.

Ben Traynor
BullionVault