Bullishness Rises in Gold Derivatives

WHOLESALE QUOTES of the gold price cut early gains in London trade today, heading into the weekend 0.6% higher from last Friday as world stock markets also rose together with industrial commodities and crude oil.

The euro pushed up though $1.3650 on the forex market, recovering half of this week's sharp drop, as politicians in Rome approved an "austerity" budget and Italian bond prices also rose, pulling 10-year interest rates slightly lower to 6.53%.

French bond yields remained close to post-euro highs versus German Bund yields, however, and Spanish debt prices fell.

"Foreseeable, unlimited" bond buying by the European Central Bank "would stop speculation, stop doubts," urged Portuguese president Anibal Cavaco Silva in a New York interview this morning.

Silver prices were meantime just about flat for the week, clearing at $33.77 per ounce in Friday's London Fix.

"Even in the gold physical market, after a strong surge yesterday, buying has dropped off again," says Friday's comment from Standard Bank's commodities team, noting the Veteran's Day holiday in the U.S.

"[Thursday's drop] was a disappointing development for the bulls," writes Russell Browne in his technical analysis for Scotia Mocatta clients.

Bloomberg's weekly gold price survey, however, has never been so bullish since launching in 2004, with 21 of the 22 analysts, traders and brokers calling for a rise by next Friday.

"The gold survey has forecast prices accurately in 223 of 387 weeks, or 58% of the time," says the newswire.

Leveraged bets on the $70 billion SPDR Gold Trust also stand near bullish records, Bloomberg data show, with call options to buy shares in the gold ETF now outnumbering put options to sell by 1.5 times—"the most since Aug. 8 [and] the third-widest gap in more than a year."

Gold analysts at Nomura Securities yesterday raised their end-2012 gold price forecast from $1800 to $2000 per ounce, citing low U.S. interest rates, the European Central Bank's new easing policy, and the Bank of England's new dose of quantitative easing.

British gilt yields fell to record lows at 2.10% on Thursday—less than half the current rate of consumer-price inflation—with the Financial Times today identifying UK debt as a "safe haven" from Eurozone bonds.

But "the position the [UK] economy is in is now officially worse than it was in the aftermath of the Great Depression," reckons George Buckley, economist at Deutsche Bank.

"Add to this the weakening in the composite PMI survey [of business activity] and escalating risks for a sharper euro area recession, and the stage possibly looks set for a much bleaker picture by the end of this year/start of 2012."

In the U.S., former Obama Whitehouse advisor Larry Summers—Treasury Secretary under Bill Clinton—said this week that "if the private sector is either unable or unwilling to borrow and spend on a sufficient scale, then there is a substantial role for government in doing that. That's the right macroeconomics. It's also common sense. . .government should be embarked on a multiyear, substantial investment program in infrastructure."

Over in India on Friday, the New Delhi government reported "huge imports of gold in October"—the month of traditional gold-buying festival Diwali, which 2011 had previously suggested was subdued compared to last year's record gold demand.

Gold bullion imports rose to $7.2 billion (B) against the monthly average of $4B to $5B. For the April-Oct. period, cumulative imports to India—which has virtually no domestic gold mining output, but is the world's No.1 consumer—rose 64% year on year.

Savers withdrew 78.7 billion Rupees ($1.6B) from small-savings deposit plans over the April-Sept. period, according to government data. The Association of Mutual Fund says government-bond savings plans saw 4% withdrawals.

"This is pure asset switching," local press quotes Commerce Secretary Rahul Khullar.

Mutual funds invested in gold bullion more than doubled in size to over 70 billion Rupees ($1.4B) according to AMFI.

"Inflation is running ahead of bank deposit rates" despite Indian bank rates rising to 12%, notes Ritesh Jain at Canara Robeco Asset Management in Mumbai.

"People are seeing the value of their money eroding. There is still enough juice in gold to continue to attract investment."

Today in Ankara, the Turkish State Mint said production of gold coins reached a new record of 58 tonnes in the first 10 months of this year, as demand rose sharply.

Adrian Ash
Bullion Vault

Gold price chart, no delay | Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is head of research at BullionVault—winner of the Queen's Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body—where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events—and must be verified elsewhere—should you choose to act on it.