Prior to U.S. trading on Monday, gold prices in the wholesale market climbed to $1,679 per ounce. The euro, stocks, and other commodities also gained following a stimulus-related announcement by Federal Reserve Chairman Ben Bernanke. This same announcement caused prices of government bonds to fall. Meanwhile, India gold demand remained low, causing analysts to look toward the future.
Speaking at the annual conference of the National Association for Business and Economics, Mr. Bernanke stated that though there are several indicators of an improving employment market, current conditions are “far from normal.” The Fed chairman specifically mentioned that jobs are far below levels seen before the economic crisis and long-term unemployment is still high. He noted that if the unemployment rate drops, private and commercial demand will increase.
Many gold dealers in India continue to strike in protest of the recent import duties increase. As a result, India gold demand continues to be low. Increased demand is expected during April due to the Akshaya Tritiya festival, the second largest gold-buying festival, occurring late in that month. However, annual imports of the metal are expected to be almost one-third lower than last year, according to a Reuters poll. Brokerages, jewelers, and importers responding to the survey provided a median estimate of 665 tons of golden imports.
In other global news, media reports indicate that European leaders are preparing to expand the “firewall” for regional financial bailouts. According to the German newspaper Der Spiegel, German Finance Minister Wolfgang Schaeuble and Chancellor Angela Merkel are now in favor of combining unused European Financial Stability Facility funds with the forthcoming European Stability Mechanism. This would increase total eurozone bailout money to approximately €740 billion, taking into account funds earmarked for Portugal, Ireland, and Greece.
These changes stem from the February G20 meeting, where European leaders were advised to play a larger role in resolving the eurozone crisis before the International Monetary Fund would make a larger contribution. The European Stability Mechanism, valued at €500 billion, will go into effect this July. Finance ministers from the eurozone will meet in Copenhagen this Friday. European Union Commissioner for Economic and Monetary Affairs Olli Rehn commented that, “The key thing now is to conclude the comprehensive crisis response [according to GoldSeek].”
Financial worries are already spreading into other areas of Europe. Over the weekend, Mario Monti, prime minister of Italy, indicated that Spain may be the next country in trouble. In early March, Spanish prime minister Mariano Rajoy established a 5.8 percent deficit target for his country. This is higher than the 4.4 percent EU target, though Spain did later agree to make additional budget cuts. At the beginning of March, ten-year Spanish government bond yields were 4.99 percent. Last week, they rose to over 5.5 percent, closer to the 6.7 percent euro era levels reached during November 2011.
According to Huw van Steenis with Morgan Stanley, it is currently “decision time” for the investment banks according to GoldSeek. His firm and Oliver Wyman consultants predict a $1 trillion decline in the balance sheets of financial institutions, created by the sale of assets and closure of operational divisions. Mr. van Steenis noted that the market does not realize the lengths to which banks will go.
On the New York Comex last week, the net long position of speculative gold options and futures traders declined to its lowest since early January, reported the Commodity Futures Trading Commission. The drop to 15.4 percent equates to 78.1 tons of bullion. This is an indicator that gold has again fallen out of favor with many speculators said Marc Ground, an analyst with Standard Bank.
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