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Gold Price "Can't Rise" as Weak Asian Demand, Technical "Correction" Take Out 50- and 100-Day Moving Average

GOLD PRICES headed for their lowest Friday close in 6 weeks in London today, trading sideways at $1295 per ounce as European stock markets failed to follow Asian equities sharply higher on the day.   With Shanghai's stock market closing the week 2.9% higher, Shanghai gold prices ended 1.5% down at the lowest since 19 June.   India's Gems & Jewellery Export Promotion Council said gold bar imports to the world's former No.1 consumer nation doubled last month from the same month in 2013.   But in what Reuters calls "a seasonally slack period", improved supplies have seen Indian premiums over London gold prices halve this week, falling as low as $5 per ounce vs. late 2013's record level of $160 when the current import curbs first hit.   "In our opinion," say analysts at Commerzbank in Frankfurt, "the weak gold demand figures out of Asia – not only China – preclude any rise in gold prices."   "Positive economic data put a dampener on the gold market," reckons an Asian trading desk quoted by Reuters, "as risk assets caught a bid and safe-haven buying dried up."   "It will be political events that provide the market with some potential direction," says a Singapore dealing note after warning yesterday morning that gold and silver "look[ed vulnerable to a correction lower."   Islamic State fighters seeking a medieval caliphate today claimed they'd over-run a Syrian army base.   The Gaza death-toll from the last fortnight's conflict with Israel was today put above 800.   Moscow's stock market meantime fell hard as Dutch and Australian police reached the crash site of Malaysian flight MH17 in eastern Ukraine, dropping 2.1% for the week – but holding well above this spring's 4-year lows – after the Russian central bank surprised FX traders with a half-point hike on interest rates.   Now at 8.0%, Russia's key overnight rate is only just ahead of Russia's latest inflation reading.   The Ruble rallied against the Dollar, but the British Pound fell to 1-month lows as UK GDP data met analyst forecasts for 3.1% annual growth.   That buoyed the gold price in Sterling at £762 per ounce, down 0.7% on the week.   "Gold plunged Thursday," says London market maker Scotia Mocatta's New York desk in its daily note, "falling below both the 100-day and 50-day moving averages."   What Scotia's analysts call "bearish trend and momentum indicators" are now "providing for ample room to the downside."   "The current correction should fetch 1285/81, mid-June highs," says technical analysis from Societe Generale, after the metal "failed to establish itself" at late-June's return to April's high of $1331.   Gold prices, the SocGen note concludes, will now need "a break above [July's] steep resistance line" coming down from the peak at $1345 and now sitting at $1300 "to prompt positive signals."

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Gold Prices "Range Bound", Dip Below "Psychologically Important" $1300 as Consensus Forecasts Fresh Falls

GOLD PRICES dipped Thursday in Asian trade, holding below what one bank's trading desk calls the "psychologically important" level of $1300 per ounce for the first time in a week.   New manufacturing data showed strong growth for July in both China and the Eurozone, where service-sector activity also expanded at its fastest pace since 2011 on the Markit consultancy's PMI survey.   After the China Gold Association said Wednesday that first-half demand in the world's No.1 consumer nation fell 19% by weight vs. H1 2013's record surge, new data today said gold bullion imports to China through Hong Kong – net of exports – hit a 17-month low in June.   Dropping some 30% in the first six months of last year, Yuan gold prices rose 5.4% between Jan. and end-May 2014, adding a further 4.4% last month.   "Acceleration in the US economic recovery story remains the key driver behind our lower gold price forecast," says a note dated Wednesday from US investment bank Goldman Sachs.   Repeating its call for gold to end the year at $1050 – below 2013's three-year lows – "US economic releases have continued to [improve] while tensions in Ukraine have escalated, keeping gold prices range bound near $1300."   New data Thursday said US claims for jobless benefits were the lowest last week since 2006.   "Investors going risk-on into equities pushed the gold price lower," reckons the commodities team at Germany's Commerzbank in Frankfurt. "Silver followed gold's trail."   "The rally in US equities continues to be a headwind for gold," agrees Australia's ANZ Bank, "despite safe haven buying providing some support to prices."   Warning today of a "dire situation" in Gaza, the United Nations also reported that bandit army the Islamic State has ordered mass mutilation of women and girls in the Iraq city of Mosul, under its control since early June.   The Financial Times meantime reports that a pro-Russian separatist leader in eastern Ukraine "came close to an admission of guilt" for killing 298 civilians on Malaysian flight MH17 last week, saying his forces did control a missile launcher of the type believed to have downed the airliner.   "We are mildly bullish for gold this year," Reuters quotes analyst David Jollie at Japanese trading house Mitsui, "but we feel many of the gains may already have been made."   That contrasts with the newswire's survey of 31 market analysts, which earlier this week showed consensus forecasts of a slight annual drop in 2014, with gold prices averaging $1255 in the last 3 months of the year against $1290 over the first half.   While US Fed tapering of its quantitative scheme "should [now] be fully priced in", says Jollie, the end of that process will however spur "market uncertainty" with regards to when the central bank may raise rates.

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100 Years to the Day Since the Gold Standard Died

Gold Standard payments through London look awfully like US Dollar clearing a century later...   GOLD loves nothing if not irony, writes Adrian Ash at BullionVault.   And here, 100 years to the day after the approach of World War I killed the Gold Standard stone dead, the world's monetary system risks breakdown again.   Again you could blame war in a poor corner of Europe. Again, that war could be cast as a big power demanding a small neighbor says "sorry" – then Serbia for the murder of a fat-necked Austrian prince, now Ukraine for ousting its fat-headed Moscow-backed president.   If irony suits, it only tastes richer when you think this week also marks 70 years since the Gold Standard's replacement was put together as the war that followed the war to end all wars finally slaughtered itself to a close. But that shadow system...of invisible gold and all-too visible paper...didn't quite die when the Dollar-Exchange system lost its link to bullion. US president Richard Nixon "closed the gold window" at the New York Fed in August 1971, yet the Dollar still rules today. So like world trade needed access to the City of London a century ago, clearing funds through a US bank is vital for world trade today.   Say US clearing becomes unavailable – or untrusted for credit-default or political reasons. Either trade will shut down (see the post-Lehmans' crisis of 2008), or it will find other systems to use. Comic little pops like bitcoin might suggest that's where apolitical free trade is headed, onto Silk Road and elsewhere.   Back to 1914, and "It may be," one merchant banker noted before the July Crisis hit London, "that hides and rabbit skins are being sold from Australia to New York, or coffee from Brazil to Hamburg." Either way, and whatever was being shipped to wherever, in every such cross-border deal "the buyers and sellers settle up their transaction in London."   That remains true of wholesale gold and silver today. Lacking any mine production, and with no consumer demand or refinery output to speak of, the UK still hosts the world's physical bullion market, settled in London's specialist vaults and ready for "digging out" onto a forklift truck before being shipped to the new owner should they ever want it. From Arizona to Beijing, Perth to Qatar, the world trades market-warranted London Good Delivery bars. Those same standards apply in most local non-London markets as well. Great Britain still rules in gold, an echo of the high classical Gold Standard shot dead a century ago.   Europe's second 30-year war destroyed Britain's empire, but London's role as the centre of money was already ruined. US banks moved into the rubble to settle the world's business, and the US Dollar took over from Sterling as Washington hoarded central-bank gold to win the peace as well as the war at that Bretton Woods conference of July 1944.   What had stopped the world's financial heart pumping in London? Scalded in late June 1914 by unknown Serb teenager Gavrilo Princip shooting dead the unlikable Archduke Franz Ferdinand, Austria handed its "belligerent ultimatum" to Belgrade on the evening of Thursday 23 July. Vienna's 10 outrageous demands made rejection look certain. (Serbia agreed to four, only to find Vienna dismiss its reply and start shelling regardless). Financial markets finally panicked the next morning, at last. They had been slow to take fright, as Niall Ferguson notes of the bond market, distracted by more trouble in Ireland and the coming summer vacation. But now London's bankers...creditors to half the world's cross-border transactions, according to Jamie Martin in the London Review of Books...awoke to find their debtors unable to pay. Because "it suddenly became difficult for foreign borrowers to remit payments" anywhere, London would not extend fresh credit. So the world couldn't raise the loans it needed to settle its debts, and the Sterling bill of exchange – "the world's premier financial instrument" – went entirely offline.   Sterling bills had been crucial. These bits of paper turned the Classical Gold Standard into that "period of unprecedented economic growth, with relatively free trade in goods, labor and capital" which misty-eyed gold bugs might think came thanks, between about 1880 and the rude end of July 1914, to physical metal alone. Promissory and transferable notes, typically with a 3-month maturity as Martin explains in the LRB, Sterling bills were accepted by traders on one side of the world in payment for goods sent to the other, and then sold to a local bank for cash. Merchant bankers in London then accepted and sold the bills on again, with the original debtor perhaps buying and sending another Sterling bill – rather than shipping physical gold – to settle the deal. Around it all went again. Until Austria's ultimatum to Serbia stopped it.   Yes, the Sterling standard limped on, and yes, so did something like the Classical Gold Standard after the guns of August finally fell silent in 1918. But private gold had underpinned the whole system before. You could convert cash into gold at your bank, giving them every reason to offer good rates of interest instead. A universal equivalent for all major world currencies, it was vital that the gold was mostly privately owned, rather than trapped in government or central-bank hands (although that was already changing, with fast-growing national hoards announcing the rise of the warfare- and welfare state in the decade before Princip shot the Archduke, much like the political earthquake of WWI had already struck Britain with the People's Budget five years before). But shipping bullion bars or coin remained clumsy, slow, risky, and thus expensive. So it was paper bills which released the value of the 19th century's torrent of gold, first Californian, then Australian and finally South African, to grease the first era of globalization.   By the eve of Austria's ultimatum to Serbia, the bill on London offered to some "a better currency than gold itself," as a Canadian banker put it, "more economical, more readily transmissible, more efficient." The City of London, capital of the world, stood ready to buy and sell whatever was wanted.   Nevermind. As Professor Richard Roberts explains in his excellent new Saving the City (free sample here), come 27 July – the Monday after the Serbs got Vienna's demands – London's money market was effectively shut. On Tuesday, with major shares like copper-mining giant Rio Tinto dumping 25% in a week, the London Stock Exchange suspended trade for the first time since it opened in 1801. From Wednesday 29 July, commercial banks in Britain stopped paying gold to the long queues of savers pulling out their deposits. But the banking run simply moved to the Bank of England itself, as people lined up on Threadneedle Street to swap the paper £5 notes they'd been given for Sovereign gold coins instead, sucking out £6 million of bullion in three days.   To stall the outflow, the annual Summer Bank Holiday was extended to nearly a week, from Saturday 1 to Friday 7 August. Ahead of the banks reopening, politicians desperate to lock down more gold for the national hoard "vociferously denounced the [private] hoarding of gold in speeches in the House of Commons," says Professor Roberts. But by then, Great Britain had already declared war on Germany on Tuesday the 4th. The Gold Standard would never recover, built as it was on free trade, Britain's imperial Navy and those Sterling bills of exchange on London's credit.   Yes, London's role as gold clearing house continues today (for now). But total war needed endless state spending. So the free-trade basics – and bullion limits – of the global Gold Standard could no longer apply. Private gold shipments were replaced by government-to-government transfers inside the Bank of England, the Bank for International Settlements, and the New York Fed...before French warships hauled metal to Paris, and Russian Aeroflot jets swapped Kremlin gold for Canadian wheat. London's Sterling bills have meantime long rotted as the world's key means of exchange. Which brings us to the US Dollar here in 2014.   French bank BNP Paribas now faces a $9 billion penalty "and a one-year suspension in 2015 of direct US Dollar clearing on its and gas, energy and commodity finance businesses," explains Pensions & Investments Online, after pleading guilty to $30 billion of transactions "with countries that are under US government sanction."   That's some slapdown. "Temporarily restricting its ability to handle transactions in Dollars," says Bloomberg, "would present BNP with administrative costs and could test the willingness of clients to remain with the bank."   Where else might those clients go? Forget the Yuan for the foreseeable future. The Dollar accounts for 41% of global payments by value, with the Euro at 32% and the British Pound in third place with 8%. The Chinese currency is way off the pace with just 1.5%. The Yuan accounts for only 23% of China's own direct trade with the rest of Asia!   Financing crooks or clearing their deals is a bad thing, of course. But the list of countries wearing "US goverrnment sanction" only gets longer. Parking or trading your money only gets tougher if your home-state doesn't suit what Washington thinks. Yes, a London government spokesman when asked Wednesday said there is a link – "a correlation" indeed – between the UK's new sanctions against Moscow and outflows from London of Russian oligarchs' cash. "That is certainly the case," as money scared of being frozen or seized gets out while there's still time. But London or Frankfurt today is nothing next to the United States' place in clearing global finance.   "No international bank," as the Financial Times noted last week, "can operate without access to the US money markets." And with access now restricted, claims FTfm columnist John Dizard, thanks to "dangerously stupid punitive actions and fines levied on banks using the international Dollar clearing system [means] the world is finding ways to get along without the Dollar."   Chief amongst them, according to Dizard's shadowy "sources", is gold – "the most expensive and least convenient of all monetary alternatives to the Dollar." Is he kidding? Perhaps not.   "Gold is very heavy to carry and often has to be re-assayed by the person accepting it as payment," Dizard goes on, "since there is often a lack of trust among participants in the off-the-books transactions that use it." No London Good Delivery and its chain of integrity here, in short. But where the rules roll over the trade, as India's surging gold smuggling proves, the trade will find a way if it must.   "Not many transactions or investments are actually invoiced in gold as such," says Dizard. "Instead gold is used as the settlement medium rather than for the price quotation."   So welcome to our neo-Classical Gold Standard. "Gold's popularity as a medium of international exchange," Dizard says, "has been soaring." The US might yet adapt, and accept that everyone pays who uses the Dollar, rather than inviting the world to find a replacement instead. Legal drug dealers in the United States, after all, need somewhere to bank their profits too.   Happy 100th birthday meantime to the death of gold money.

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Prices to Buy Gold "Led by Geopolitics & Bond Yields" as Shanghai Discount "Deters China Inflows"

BUY GOLD bids eased back in London on Wednesday, holding spot prices flat around $1308 per ounce as US stock markets rose to record highs despite fresh violence in Ukraine and Gaza.   The United Nations said there is a "strong possibility" Israel has violated international law "in a manner that could amount to war crimes."   Kiev said pro-Russian separatists today shot down two Ukrainian fighter jets near last week's crash site of civilian airliner MH17.   "Prices [to buy gold] have gained somewhat recently," says a report from Dutch bank ING's investment management division, "resulting from heightened geopolitical risks.   "The decline in long-term real US Treasury yields also supported gold...[but] upward yield pressure as the global cycle improves and disappointing physical demand in China and India remain downward forces."   Yields offered by 30-year US Treasury bonds today fell near 13-month lows as prices rose after yesterday's US inflation data failed to deliver the "spook that guys were looking for," according to one primary bond dealer in New York quoted by Bloomberg.   UK gilt yields also fell today, as did the Pound, following news that the Bank of England's policy team voted 9-0 to keep its key interest rate unchanged at a record low 0.5% for the 64th month running  earlier in July.   Italian bond prices extended their best rise since 2010, pushing the yield offered to new buyers down to 2.76% – barely one-third the Euro Crisis peak of late 2011.   Targeting sub-$1200 prices however, "Gold is in a speculative bubble in the process of deflating," says commodities analysis from French investment and London bullion bank Societe Generale.   "The triggers were lack of inflation and Fed tapering [of its QE asset purchases]. We expect further large-scale ETF selling."   The giant SPDR Gold fund (NYSEArca:GLD) yesterday expanded after shedding metal Monday, with shareholders wanting to buy gold exposure through its ETF trust structure adding 1.5 tonnes to holdings of 803 – a five-year low when reached during the 2013 price crash.   Meantime in China – where end-user gold consumption fell 19% from last year's record levels over the first 6 months of 2014, according to trade-body the China Gold Association today – an overnight dip in prices "was quickly scooped up by bargain hunters," according to a trading note from Swiss-based refining and finance group MKS.   However, versus prices to buy gold in London – center of the world's wholesale bullion trade – the price in Shanghai "remains around a small discount to flat," MKS goes on.   That has "failed draw out any further business from arb traders" who could more usually buy gold in London and sell in China for a certain profit.

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Gold Prices Jump 0.9% on US Inflation Data, GLD Shrinks Despite Ukraine "Safe Haven Bid" as India Confirms Anti-Gold Import Rules

GOLD PRICES dropped and then spiked Tuesday lunchtime in London, as new US data showed consumer-price inflation holding steady at 2.1% in June.   The new government of India earlier said it will retain anti-gold import rules – imposed last summer by the previous administration – defying India's gold and jewelry industry hopes and aiming to continue curbing the No.1 gold-buying nation's currenct account deficit with the rest of the world.   World stock markets rose Tuesday, as did energy and base metal prices.   The UK government meantime pushed for tougher EU sanctions against Russia over the downing of Malaysian flight MH17 over eastern Ukraine last week.   With more than 600 Palestinians and 29 Israelis reported killed in the last fortnight meantime, US and UN officials today met in Cairo to try and broker a cease-fire in Gaza.   "Tensions over the Ukraine kept safe-haven buying active," says a note from Australia's ANZ Bank.   But the quantity of gold bullion needed to back the world's largest gold ETF, the SPDR Gold Trust (NYSEArca:GLD), shrank Monday to erase the previous trading day's gain at 803 tonnes.   Derivatives betting on gold prices rose in contrast, adding 1% to the number of both futures and options contracts now open at the US-based Comex exchange.   Gold prices today jumped 0.9% after June's US inflation figures, steadying above $1310 per ounce to trade unchanged for the week so far.   The US Dollar also rose after the inflation data, briefly pushing the Euro near 2014 lows at $1.3550.   Gold prices for Eurozone investors rose above €970 per ounce – a 3-month high when hit in the wake of "dovish" comments on US monetary policy from Federal Reserve chief Janet Yellen in mid-June.   Reviewing gold prices since 2001, the metal is "ranging (and compressing) between the larger trends," says a note from Diapason Commodities Management in Lausanne.   Short term, "Precious metals are likely to retrace a little further," reckons technical analyst Axel Rudolph at Germany's Commerzbank in his weekly chart book.   "Only a rise above the current July high at 1345.30 would make us re-instate our bullish forecast."   "Resistance shows first at $1319," say technical analysts at London market-making bank Credit Suisse, "then the 61.8% retracement of the recent fall at 1325.   "Above here," they agree with Rudolph, "[we] would look to the $1345 recent high where we would again expect selling."   Meantime in India – where BJP finance minister Arun Jaitley today backed "continuing" the anti-gold import rules set by the previous government – the central bank has set new rules to try and curb a boom in households borrowing against gold.   Loans made for non-agricultural purposes must not exceed 75% of the value of the gold used as collateral, and can run for no more than 12 months.   A boom in agricultural gold loans to Indian farmers in southeastern coastal state Andhra Pradesh "[has been] used for other activities," a finance department official said Monday, including fresh purchases of gold.   "Another reason for the rising number of loans," says the Deccan Chronicle, "was [AP state's] chief minister N.Chandrababu Naidu's election promise of waiving off all farm loans after coming to power."   Naidu's administration today waived some $25,000 of state farming loans per family, the paper says.

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