Banks up and gold talked down in latest Nordic views

Local analysts and investors in Norway are warning that the current price of gold is not sustainable, even as demand has pushed the metal past the $1,600 level.

Business daily Dagens Næringsliv quotes Henrik Madsen, analyst at First Securities saying that the gold price is above all a market reaction to debt problems in the US and Europe, but that the pending actions of central banks will be key to determing the near term direction of its price.

“The underlying drivers here are how central banks will react to the debt situation. If central banks continue to print more money it will become less profitable to sit on fixed income paper. Apart from going into gold, investors can hold something where the supply actually is limited.”

“There has been a lot of fear in the market lately. One cannot look past the fact that a lot of investors have jumped into gold, but it is difficult to see how they can remain in gold for a long time. This creates a latent pressure to sell somewhere in the future,” he said.

Another factor raised by Norwegian investors is the current gap between the market price and the average production cost of gold. This is seen as abnormally high, and if the market uncertainty driving demand for gold disappears, this could be a clear downside risk some investors believe.

Evidence of bank strength

As if on cue, Nordea has followed up Friday’s report on stress tests by the European Banking Authority with its own set of results showing that half year operating profit jumped 21% to €1.9bn compared with the same period last year.

Total operating income in the period was up 9% to €4.85bn. Profit before loan losses was up 9% to €2.3bn, and net loan losses shrank by 29% to €360m.

The bank reported that the number of gold and private banking customers increased by 6% or 183,000.

Chief executive Christian Clausen said: “The solid business momentum is maintained. Income from customer areas increased by 5% in the quarter and both operating and risk-adjusted profit are higher than last year. Loan losses are at the lowest level since 2008 and credit quality continues to improve. At the same time, the trading result decreased from last quarter’s high levels due to volatility in the financial markets and interest income was affected by increased and prolonged funding.”

 

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