Spot gold prices rose towards a one-week high above $653 per ounce at lunchtime in London on Monday. Earlier in the morning, the AM Fix had come in at $650.50 per ounce – gold’s lowest monthly start since January.
‘There are a number of supportive factors for gold now, and it’s a question of when players will start buying on those incentives,’ reckons Koji Suzuki, gold market analyst at Kazaka Commodity Co.
‘Oil prices above $70 a barrel will lead people to worry about inflation,’ added another Tokyo analyst to Reuters.
‘There is no short-term solution to geopolitical risks,’ said a third, referring to the failed terrorist attacks in London and Glasgow late last week. ‘Strong product demand for oil, with low gasoline inventories in the US, is supporting crude oil prices.’
Internal to the gold sector, further inflationary pressures may be resolved after the South African government settled a wage claim with its civil servants. Their month-long strike ended with a 7.5% increase across the board.
‘I thought it was a very realistic settlement,’ said Peter Major from Cadiz African Harvest, the Cape Town fund management firm. ‘I think it’s a fairly good precedent for the mines.’ South Africa’s platinum and gold mining companies have been facing demands for a 15% wage rise.
Back in the live gold market, the Tocom’s April ’08 gold futures contract ended flat in Tokyo overnight at the equivalent of $658.62 per ounce.
On the tenth anniversary of the Thai Baht devaluation that triggered the late ’90s Asian Crisis, the Tokyo stock market ended the day unchanged after the Tankan index of business sentiment came in on forecast, giving the Bank of Japan little cause to raise Yen interest rates from their current 0.5% next week.
India’s Sensex crept 0.2% higher, as the Jakarta Composite of Indonesian stocks leapt 1.3% higher and the South Korean market ended nearly 1.6% higher. European stock markets were flat by lunchtime, with real estate stocks outweighing gains in energy shares in London.
In the currency market the Japanese Yen recovered three days of losses against the US Dollar, but it held near its all-time low against the Euro at ¥166.55. The European single currency had earlier spiked higher on news of stronger-than-forecast manufacturing data both from Germany and the wider Eurozone union.
That kept the Euro price of gold unchanged at €480 per ounce early Monday. British investors wanting to buy gold saw the price rise 0.3% to £324.60 after UK manufacturing data came in below forecast.
Sterling fell half-a-cent against the Euro but held above $2.01 against the Dollar. Both the Bank of England and the European Central Bank will announce their latest interest rates on Thursday. But as neither is expected to change policy in July, all eyes will be on this week’s brings a flurry of key economic data releases from the United States, despite the long mid-week holiday for Independence Day (July 4) starting Tuesday lunchtime on Wall Street.
First comes the ISM Index of business orders and sentiment, probably the most widely watched economic indicator produced by the private sector, due today at 15:00 GMT.
Tuesday brings Factory Orders, Auto & Truck Sales, plus pending home sales – forecast to show a 0.6% rise in May after April’s 3.2% drop.
Following the Independence Day holiday, Thursday will see the release of initial jobless claims for the week-ending last Friday (June 30th) plus the ISM Services index. Friday follows with the closely watched non-farm payrolls, expected to show a slowdown in US recruitment plus a slight dip in the average workweek with no change in hourly earnings or the unemployment rate.
‘The payroll report is likely to point to weakness in the economy,’ said one senior economist to Bloomberg at the weekend. ‘Treasury bonds are likely to gain support,’ with the 10-year yield falling to 4.9%, he added.
The trouble hitting Bear Stearns from its mortgage-backed hedge fund investments rumbles on in the meantime. Today’s Wall Street Journal reports that the bank – the third largest securities firm in the US – may take another two weeks to calculate the losses incurred by its two struggling funds.
Investors concerned by the as-yet unknown risks of non-payment lurking in the global credit markets may consider a position in physical gold – owned outright with no risk of default – to be worthwhile insurance.
Adrian Ash is editor of Gold News and head of research at www.BullionVault.com, the fastest growing gold bullion service online