London Gold Market Report
U.S.DOLLAR gold bullion prices
leapt 1.7% in 30 minutes Wednesday lunchtime in London – hitting $1744
an ounce – following an announcement of coordinated action from central
banks worldwide aimed at increasing Dollar liquidity in the global
financial system.
The
Bank of Canada, the Bank of England, the Bank of Japan, the European
Central Bank, the Federal Reserve, and the Swiss National Bank will all
lower the price on existing Dollar liquidity swap arrangements by 50
basis points (0.5 percentage points), effective Monday.
As
well as strengthening Dollar liquidity provision, the central banks
"judge it prudent" to make arrangements to offer enhanced liquidity
provision in other currencies " so that liquidity support operations
could be put into place quickly should the need arise", a Bank of
England statement said.
On the currency markets the Dollar fell sharply following the central banks' announcement.
Despite its rally, the price of gold bullion this lunchtime remained only marginally above where it began the month.
Spot market silver bullion prices also surged – jumping 3.5% to $32.51 per ounce in the space of 36 minutes – while stocks and commodities also rallied.
By Wednesday lunchtime in London the FTSE was up over nearly 3% on the day – while Germany's DAX was up more than 4%.
A
few hours earlier, ratings agency Standard & Poor's cut its ratings
on 15 of the world's largest banks late Tuesday – while at the same
time raising its rating for two Chinese banks.
Bank
of America, Barclays, Citigroup, Goldman Sachs, HSBC, JPMorgan Chase,
Morgan Stanley, Royal Bank of Scotland and UBS all had their debt
ratings cut by one notch each – reportedly as a result of changes in
ratings methodology at S&P.
Despite
this technical explanation, the downgrades "will likely raise concerns
about their short term funding," says Andrew Fraser, investment director
at Standard Life Investments, speaking before the central banks'
announcement.
"They will be sidelined by money market funds who are the traditional buyers of that short-term paper."
S&P
could also change its outlook on France's AAA rating from stable to
negative "within a week, perhaps 10 days" reports French newspaper La
Tribune, citing an anonymous diplomatic source.
European
leaders meantime "are now entering the critical period of 10 days to
complete and conclude the crisis response of the European Union,"
European economic and monetary affairs commissioner Olli Rehn said
Wednesday.
The next European leaders' summit is due to take place on December 9.
Eurozone
finance ministers meantime agreed Tuesday on measures aimed at boosting
the Euro area's rescue fund, the European Financial Stability Facility.
One
mechanism will be a "partial protection certificate" for government
bond investors, worth 20-30% of the initial amount invested. These
certificates, will be detachable and separately tradable, according to
an official EFSF statement.
The other measure agreed involves creating "one or more Co-Investment Funds", to attract additional investment.
"Both options are designed to enlarge the capacity of the EFSF," said Klaus Regling, the rescue fund's chief executive.
"[However]
it is really not possible to give one number for leveraging because it
is a process...we will need money as we go along."
The
EFSF's current effective lending capacity if €440 billion, backstopped
by guarantees from Eurozone governments. Some of that €440 billion is
already committed in loans, however, while the guarantees offered by
countries like Italy and Spain have been compromised by those countries'
recent fiscal difficulties.
There
are widespread concerns that the EFSF is not large enough to rescue
either of those two nations should they require a bailout.
"We will have to look at the IMF," Dutch finance minister Jan Kees de Jager told reporters after Tuesday's meeting.
"We
have talked about leverage though private money, but it would be two or
two and a half times an increase so not sufficient... I think countries
in Europe and outside of Europe should be prepared to give more money
to the IMF."
Tuesday's meeting also brought an agreement to release €8 billion of bailout funding to Greece.
A
poll of economists by newswire Reuters meantime shows a majority
expects the ECB to cut interest rates when it meets next week.
Switzerland has become the number one destination for Italian exports – primarily owing to a large jump in gold bullion shipments, Italian business daily Il Sole 24 Ore reports.
In Vietnam meantime a number of gold bullion refiners
are reported to have shut down their processing operations following a
central bank draft decree that some fear will hand a monopoly to a
single refiner, Saigon Jewelry Co.
The State Bank of Vietnam has previously allocated gold bullion import quotas to refiners, one trader in Ho Chi Minh City says.
"Over the last few months [though] only the Saigon Jewelry Co was allocated quotas.
SBV governor Nguyen Van Binh last week announced that the central bank has "administratively acquired" SJC – the latest in a series of moves aimed at regulating Vietnam's gold market.
Ben Traynor
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