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					Gold demand "strong on dips" as confidence in currencies "goes down the
drain"

Gold price holds over $1730 on the 40th anniversary of President Nixon
cutting the U.S. dollar link with gold.

Author: Adrian Ash

LONDON -

Gold prices held above $1730 in London trade Monday morning - the 40th
anniversary of US president Richard Nixon "closing the gold window" and
officially ending the $35-per-ounce Gold Exchange Standard.

Trading nearly 4.7% below last week's new all-time high of $1815, the
price to buy gold stood 50 times higher from the official US Dollar
exchange rate of 15 August 1971.

Crude oil has risen nearly 24 times over since then, while US consumer
prices (on the official measure) have risen 5-fold.

The S&P 500 stock market index has risen a little over 12-fold since
August 1971.
"The metals had a fairly tame start to the week," says a note from
Mitsui's Hong Kong office on the $20-per-ounce overnight fall in the gold
price.

"That provided a good opportunity to Chinese [traders], who bought either
to establish long positions or to sell against Shanghai [as it] showed
high premium."

Prices to buy gold on the Tokyo wholesale market also rose versus the
London benchmark, cutting their discount to 75c per ounce as prices fell
- the lowest since Dec. 2010 according to Reuters.

"We haven't seen much scrap and...are getting good physical demand from
Indonesia and Thailand," it quotes a Singapore dealer today.

Anecdotal reports quoted   by the newswire on Friday claimed that scrap
gold supplies - sales by   the general public of unwanted or broken jewelry
- have been drying up in   New York, Mexico City and Chennai, India despite
this month's 11% jump in   the gold price.

"While there are decent amounts of scrap gold coming to market from Asia,
this is being outweighed by physical buying," says today's note from
Standard Bank in London.

"Buying should increase on price pull-backs as we head into high seasonal
demand" from Indian households ahead of the Diwali festival in late
October.

Tokyo and other Asian stock markets meantime rose sharply this morning
after new data showed Japan's economy shrinking less quickly than
analysts forecast after March's tsunami and nuclear crisis.
European stock markets also rose, extending their two-day rally from the
summer's 25% plunge in French and German equities.

"There won't be a collectivization of debt or unlimited assistance," said
German finance minister Wolfgang Schäuble in today's edition of Der
Spiegel, denying the joint-government bond solution to the Euro debt
crisis set for discussion this week by Chancellor Angela Merkel and her
French counterpart, Nicolas Sarkozy.

"Eurobonds would mean that everybody shares the same interest burden
which would be a punishment for [fiscally] prudent nations," added
Berlion's economic minister Philipp Roesler today, quoted by the DAPD
news agency.

"Confidence in our currencies, policy makers and central banks is going
down the drain," says Swiss asset manager Felix Zulauf in the latest
edition of Barron's magazine.

"That will be reflected in a rising gold price.

"I have long said this isn't an environment for investing in stocks. Hold
cash in the form of short- to medium-term Treasuries. Own a lot of gold,
and don't have debt."
Desperate to suppress the surging Swiss Franc against the Euro, the Swiss
National Bank injected cash equal to 20% of the country's annual economic
output into the banking sector last week, reports the Financial Times'
Gillian Tett today.

As a result, "Implied Swiss interest rates plunged into negative
territory," Tett writes. "If you want to lend Swiss Francs or make a
deposit in the next year, you must pay for the privilege.

"Call it Alice in Wonderland economics."

Analysts meantime continued on Monday to guess at the size of last week's
intervention by the European Central Bank in the Italian and Spanish bond
markets, with Gary Jenkins of Evolution Securities pegging the ECB's bond
buying between €10 billion and €15bn.

"Spain and Italy between them are expected to come to the market for over
€100bn of medium to long term funding for the rest of this year," Jenkins
adds in a note, "which could mean official support for the markets may
have to be substantial."

Adrian Ash is head of research at BullionVault where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

Source:
http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=133489&sn=Detai
l&pid=34

				
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posted:8/21/2011
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