Gold: "Bearish Pressure Eases" as Investing Switches from Safe-Haven to Insurance - 20 August 2009

The cost of Gold Investing slipped back from yesterday's 1.2% jump in quiet London trade on Thursday, dipping below $940 an ounce as European stock markets rose for the third day running.

Government bonds were flat, with 10-year US Treasury yields staying near this week's lows at 3.48%.

Crude oil ticked back towards $72 per barrel after Wednesday's US inventories data sent prices higher with a surprise drop in reported stockpiles.

"Momentum for gold came from crude oil prices," says today's note from Standard Bank here in London.

"Gold is now finding support from its previous resistance level of $940."

Oil cartel Opec – which controls more than 40% of world output – will leave its production quotas on hold at next month's meeting in Vienna, reckons Barclays Capital.

The Gulf of Mexico's hurricane season "has gotten off to quiet start", however, the National Weather Service said this morning, predicting only a 10% probability of above-normal storms between Aug. and Oct.

"[Wednesday's move] seems to have stabilized the bearish pressure" on Gold Investing, say London market-makers Scotia Mocatta in their technical note, "but we are not convinced of a sustainable bounce until the unit can reclaim 949 on a close basis."

In Shanghai today, mainland Chinese stocks reversed all of Wednesday's 4.3% drop, but remained more than one-sixth below the peak of early August.

Tokyo Gold Futures recovered 1% to ¥2,871 per gram – some 4.3% below early August's three-month high – while the Yen rose versus the Dollar.

London's FTSE100 share index meantime reached a fresh 10-month high, while an auction of inflation-linked government bonds – due for repayment in 2032 – drew bids for just 1.75 times the debt on offer.

May's auction of the same UK security drew 2.08 times the bids required.

The UK Treasury said today that July's tax receipts lagged spending by £8 billion ($13.5bn). City analysts had forecast a monthly deficit of £0.5bn.

The Pound fell towards one-month lows versus the Euro. The Gold Price in Sterling held in a tight range above £570 an ounce.

"Gold Investment flows have eased off, but they are still running very, very strongly in historical terms," says Rozanna Wozniak, investment manager at marketing-group the World Gold Council.

Yesterday the WGC's latest Gold Demand report highlighted the gap between falling world jewelry demand and strong Gold Investment in developed nations – both driven by the on-going economic downturn.

"Investors who were looking for a safe haven are now starting to see gold as an insurance policy, as a way to provide diversification in their portfolio," says Wozniak. "Very few assets are able to remain resilient in an economic crisis, so it makes sense to have a bit tucked away just in case."

Private investment in Gold Bars, coins and allocated accounts rose 23% quarter-on-quarter between April and July, swelling by one-eighth from the same period last year.

Global jewelry purchases are running one-third below 2008 levels.

Gold demand in the first half of 2009 fell 55% on year in India, and jewelers expect the weakness to extend to the second half of the year despite major festivals.

"Demand is picking up from the last couple of weeks but sales will be still 50% below last year's levels during the coming festival season," said one Indian bullion dealer to the Wall Street Journal overnight.

Gold demand in India – now overtaken by China as the world's No.1 gold consumer – fell 55% between Jan. and July compared with the first-half of last year.

China is also the world's No.1 Gold Mining nation, overtaking South Africa in 2008 as the former leader's annual output sank by more than one half from the late 1990s.

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