Gold Bullion Plunges, CFTC Votes on "Speculative Curb", Asia "Could Be New Pool of Liquidity" for Gold Market

Gold Bullion prices fell 1.4% in less than half an hour to $1638 per ounce Tuesday lunchtime in London – while stock markets also fell sharply – after investment bank Goldman Sachs announced a third quarter net loss of $393 million. 

The loss – Goldman's second ever as a listed company – represents 84 cents per share, compared to a Bloomberg analysts' consensus forecast of 11 cents.

Earlier trading saw Gold Bullion prices steadily decline throughout Tuesday morning – along with stocks and commodities – after China's GDP figures showed an economic slowdown and doubts were raised about France's sovereign credit rating.

On the currency markets, the Euro fell for the second day running against the Dollar.

Meanwhile in Washington, US regulator the Commodity Futures Trading Commission was set to vote later today to set "position limits" on traders in a range of markets, including silver and Gold Futures. 

Aimed at "curbing excessive speculation", the position limits are one of 32 areas demanding new CFTC regulation under the Dodd-Frank finance bill.

The CFTC vote comes just one day after the Chinese Gold & Silver Exchange Society launched the Yuan-denominated Kilobar Gold contract in Hong Kong – the world's first Yuan-denominated gold contract outside mainland China.

"If the theme of the precious metals market was smuggling into the subcontinent in the 80s," says a note from the Hong Kong desk at Mitsui Precious Metals this morning, "mining finance in 90s, the rise of ETFs in the first decade of new millennium, then one theme for this decade is probably the great gold hoarding in Asia and possibly the rise of new pool of liquidity outside London and New York."

"We continue to expect Gold Prices to be cushioned amid the seasonally strong period for physical demand," says a note from Barclays Capital.

"As confidence over Europe remains fragile and concerns over China build amid a low interest rate environment, investor appetite is set to remain positive, barring the need for liquidity."

China's economy grew at an annualized rate of 9.1% in the third quarter – down from 9.5% in Q2 and the slowest pace in two years – official figures published Tuesday show.

"China's export-reliant enterprises are facing their toughest time in years," says Wei Jianguo, former vice-minister of commerce.

"It's time to ease macroeconomic policies in the export sector and give exporters easier access to loans."

"The risk of a hard landing is a distant scenario," counters Liu Li-Gang, Hong-Kong-based economist at ANZ Bank.

In Europe meantime, ratings agency Moody's said Monday that it will monitor its 'stable' outlook for France's Aaa rating over the next three months.

"Moody's notes that the government’s financial strength has weakened, as it has for other Euro area sovereigns," said a statement from the rating agency. 

"The global financial and economic crisis has led to a deterioration in French government debt metrics — which are now among the weakest of France's Aaa peers."

Yields on French 10-Year government bonds this morning rose to 3.1% - over 100 basis points (one percentage point) above 10-Year German bund yields, compared to a 38 bps spread this time last year.

Here in the UK, consumer price inflation rose to 5.2% in September – up from 4.5% the previous month – according to official data. September was the 21st month in a row to see CPI outside the Bank of England's target range of one percentage point either side of 2%.

So-called underlying inflation – the change in the retail price index excluding mortgage interest payments (RPIX) – rose to a 19 year high of 5.7%. Until 2003, the Bank's inflation target was 2.5% RPIX, with a tolerance of one percentage point either way.

Bolivia, Russia, Thailand and Tajikistan all added to their official Gold Bullion reserves in August, according to figures published by the World Gold Council.

Thailand was the largest declared buyer with 9.3 tonnes, followed by Bolivia with 7.0 tonnes, Russia with 3.6 tonnes and Tajikistan, which bought 1.9 tonnes.

Three countries – Czech Republic, Mexico and Mongolia – declared sales of Gold Bullion during August, measuring 0.1 tonnes, 0.2 tonnes and 0.7 tonnes respectively.

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