LONDON (Alliance News) - UK stock indices are modestly higher mid-morning Monday, with little in the economic calendar to drive sentiment and investors focusing on the sharp fall in gold price to a new five-year low.
The price of the precious metal sunk below USD1,100 an ounce for the first time in five years, hitting a low of USD1,073.40 an ounce overnight. The price of gold has since rebounded and currently trades at USD1,115.16 an ounce but the fall has still caused the share price of precious metals miners to decline significantly.
Gold has been sold off as speculation of a September rate hike in the US grows. US Federal Reserve Chair Janet Yellen lent support to the expectation of higher interest rates later this year in her testimony before Congress last Wednesday and Thursday, if the US economy shows sustained recovery.
Also weighing on gold prices is the disclosure of lower-than-expected gold reserves held by China. The People's Bank of China on Friday said gold reserves in the country reached a record 1,658 tons as of June 2015, up a near 60% from 1,054 tons in April 2009. However, the surge was below analysts' expectations, dragging gold prices down sharply.
"The slump in gold has been brought about by a large sell order that has squeezed the markets. Five tonnes, a fifth of daily average volume have been unwound in the [Shanghai Gold Exchange]. The SPDR gold trust holdings fell by 1.5% last Friday. The lack of implied volatility in equity markets, coupled with a stronger expectations for monetary tightening in the US are showing gold up for its distinct lack of yield and the cost of holding," says Brenda Kelly, head analyst at London Capital Group.
Gold miners lead the fallers in the FTSE 100 and FTSE 250, with Fresnillo down 3.2% and Randgold Resources, down 3.1% leading the blue-chip fallers, while Lonmin, down 6.4%, Centamin, down 5.5% and Acacia Mining, down 4.2%,the worst of the mid-cap performers.
However, despite the slump in gold prices, the FTSE 100 trades up 0.5% at 6,806.33, the FTSE 250 is up 0.4% at 17,833.71 and the AIM All-Share is up 0.3% at 758.82.
In Europe, the French CAC 40 and the German DAX 30 are both up 0.8%.
Banks in Greece re-opened Monday for the first time in three weeks after the cash-strapped country received emergency liquidity. Greek banks have been closed since June 29 as the country tried to reach a deal with international creditors and capital controls were put in place to prevent a run on the banks, which restricted withdrawals to EUR60 a day. Greeks will now be allowed to withdraw EUUR420 a week, but other controls largely remain in place, including a block on foreign bank money transfers and a ban on new account openings.
The decision to reopen banks was taken after the European Central Bank last week approved a hike in the limit of Emergency Liquidity Assistance and boosted funds by EUR900 million over one week. The bank closures is estimated to have cost the Greek economy at least EUR3 billion.
"Considering the distrust that must be rife in Greece, it's likely we'll see numerous banks struggle as they physically run out of cash in the first couple of days this week," says IG market analyst Alistair McCaig.
"A little more disconcerting is the escalation in German political squabbling, as tensions between Angela Merkel and Wolfgang Schaeuble look to be heading towards breaking point, and a disjointed German leadership is the last thing that the eurozone needs," McCaig adds.
Elsewhere on the London Stock Exchange, FTSE 250-listed engineering software company AVEVA Group leads the gainers in the index, with its shares soaring 26% to 2,229.30 pence. The company said it has struck a deal with French energy group Schneider Electric SE to acquire industrial software assets from Schneider in a GBP1.3 billion reverse takeover.
Under the terms of the deal, AVEVA will acquire Schneider Software on a debt-free, cash-free basis and will receive GBP550 million in cash from Schneider Electric for AVEVA shares, giving Schneider a 53.5% stake in AVEVA. AVEVA said that based on its share price before the market open - shares in the company closed at 1,770 pence last Friday - around 74.0 million shares will be issued to Schneider Electric having a market value of around GBP1.3 billion.
Standard Chartered trades up 1.5% after the recently-appointed chief executive of the emerging markets-focused bank, Bill Winters, appointed a new management team reporting directly to him and changed the bank's structure as he tries to improve performance and cut USD1.8 billion in costs by the end of 2017.
The new management team, which consists of 13 members, will be responsible for devising a plan by the end of the year to address the emerging markets banking group's performance, Standard Chartered said in a statement on Sunday.
Ladbrokes trades up 2.3% after The Times reported the bookmaker is close to securing a takeover of Gala Coral Group Ltd in a GBP3.5 billion deal which would make the combined entity the largest bookmaker in the UK. Ladbrokes shares surged higher in June after the talks were first revealed amid a wave of takeover activity in the gambling sector.
Still ahead in the economic calendar is the German Bundesbank's monthly report at 1100 BST.
By Neil Thakrar; neilthakrar@alliancenews.com; @NeilThakrar1
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