Gold Market Report

Source:

"Stocks and commodities rallied after yesterday's decision by four European regulators to ban short selling."

Spot market gold bullion prices fell nearly 1% in an hour Friday morning London time—hitting a low of $1746 an ounce—as stocks and commodities rallied after yesterday's decision by four European regulators to ban short selling.

Dollar gold bullion Prices however remained 5% up on the week as we head towards the weekend.

Silver bullion Prices meantime hit $38.70 per ounce around lunchtime—a 1% gain for the week.

"The gold physical market seems to believe that gold will move still higher soon," reckons Walter de Wet, commodities strategist at Standard Bank.

"This, combined with seasonal demand which should start picking up soon too, is providing good physical demand for gold and silver."

"The gold market remains underpinned by the movement to physical gold," agrees a note from UBS.

"We have also observed among existing and indeed new clients this week a growing preference towards allocated gold instead of metal account/unallocated gold. . .the move to real assets such as gold in physical form signifies the heightened state of risk aversion at present."

Regulators in France, Italy, Spain and Belgium moved to ban short selling of financial stocks on Thursday—after another day of volatile trading in the shares of French banks. The ban will be in effect for 15 days.

Short sellers "wanted to test French resistance," said Jean-Pierre Jouyet, head of the Autorité des Marchés Financiers, the French regulator.

"This is our response, as always very determined, and it will be so for all those who want to put us to the test."

"It is the worst thing to do right now," says Abraham Lioui, economics professor at France's Edhec business school.

"This would signal to the market there may be something fundamentally bad that is happening."

"In the short-term it will help calm things down," adds Ion-Marc Valahu, fund manager at ClairInvest in Geneva.

"But if you look at what happened at Lehman during the crisis, it didn't do much."

The Dutch financial regulator said Friday it did not see any need for a ban.

France's economy failed to grow at all in second quarter of the year, according to figures published Thursday—which showed French GDP growth of 0% compared to the first three months of the year.

Friday meantime brought news that Eurozone-wide industrial production slowed in June. Year-on-year growth dropped to 2.9% - down from 4.4% the previous month.

Over in the US, SPDR Gold Trust (ticker: GLD), the world's largest gold ETF, saw its biggest one day outflow of gold bullion since January on Thursday, as investors withdrew the equivalent of 23.6 tons.

"Some ETF investors clearly view the recent. . .sharp price rally as exaggerated and have taken profits, as financial markets calm," says a note from Commerzbank.

Over in Vietnam, the governor of the central bank has suggested the Vietnamese government may seek to control the domestic gold price.

His comments come after the Vietnamese Dong fell 1% against the Dollar this week to VND20,812 per $1—the biggest fall since February.

"Companies need Dollars to import gold," explains Luu Hai Yen, fixed-income analyst at Thang Long Securities in Hanoi.

"Demand for Dollars is expected to rise from now to the end of the year."

Vietnam is pursuing "muddled objectives" says Dr. Vuong Quan Hoan, founder of Hanoi-based consultancy DHVP Research.

"This added target. . . would likely further complicate the already clumsy monetary policy in the country amid increasing pressure caused by macro imbalances."

Earlier in the week the State Bank of Vietnam—which controls the import and export of gold—allowed dealers to import 5 tons of gold bullion to ease domestic gold prices, which had opened up a premium against those quoted on the international spot market.

Ben Traynor
BullionVault

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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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