Jump in Gold as France Refutes EU Pact

THE WHOLESALE MARKET gold price jumped at the start of New York trade on Thursday, cutting the week’s previous 3.3% dive to 5-month lows in half as the Euro fell and Eurozone stock markets slumped once again.

The gold price touched $1558 per ounce before easing $3 lower. Silver did not follow, failing to break this morning’s earlier Dollar high at $27.86 per ounce.

German Bund yields fell to fresh record lows, but Spain had to offer investors in new 3-year debt an annual yield of 4.37%, up from the 2.89% charged at the last comparable sale in April.

gold money gears Jump in Gold as France Refutes EU PactThe European Central Bank confirmed it has ceased working with some Greek banks because it believes them to be insolvent, while Portugal’s Diario Economico newspaper claimed a joint visit by the ECB, IMF and European Union to assess Lisbon’s €78 billion bail-out will also discuss contigency plans should Greece quit the single currency.

Greece’s interim cabinet of academics, lawyers and diplomats was today sworn in, pending fresh elections in four weeks’ time.

The gold price in Euros jumped 1.9% from Wednesday’s low, trading above last week’s closing level.

France’s new finance minister, Pierre Moscovici, today said the socialist government of Françoise Hollande will not ratify the European Union’s fiscal pact agreed by 25 out of 27 member states last December.

Gold’s Relative Strength Index – a technical measure of the speed and size of price change – “is approaching extreme oversold territory,” says the latest technical note from bullion bank Scotia Mocatta, “but there are no warning signs yet of a change in trend.”

“Gold is definitely in oversold territory, and there should be some good buying interest around the low in December,” Bloomberg quotes Dong Zhuying at Haitong Futures Co.

“Paring its losses near key support at $1525,” says Ed Meir at Intl FC Stone, the gold price likely saw “a decent amount of short-covering” by bearish traders on Wednesday, if not “fresh buying” after it held that level.

European stock markets fell again Thursday, losing value for the 8th session out of 11 in May so far and taking Madrid’s Ibex 35 index down to a fresh 9-year low, some 3.4% down on the day.

Crude oil slipped to new 6-month lows after data on Wednesday showed US energy stockpiles more glutted than any time since 1990.

Commeting on gold’s 20% drop from last summr’s all-time highs, “I believe gold will become a haven again, especially if you see fragmentation in the Eurozone,” said the World Gold Council’s Marcus Grubb to Bloomberg TV this morning, launching market-development group’s latest Gold Demand Trends report.

“Because then you’re going to get currency depreciation, you may get inflation in some countries, deflation in others…and you’ll see gold’s attributes as a hedge come to the fore.”

In the first quarter of 2012, global gold investment demand rose 13% by weight and 38% by Dollar value from the Jan-March period last year, says the report. In the jewelry sector, “Gold is underpined now by two large markets and China is playing catch up to India,” says Grubb, also speaking to Reuters this morning.

“Per capita gramme consumption rates are rising in China.”

Acknowledged as the leading authority on global demand and supply analysis, the World Gold Council says that China’s gold demand again beat India in the first quarter of 2012.

“You’re going to see China become the largest gold market overall by the end of this year for the first time,” Grubb believes. “It’s worth remembering that growth rates are still in the 7-8% range. So people are getting wealthier, and they will continue to buy gold strongly we believe.”

Beijing last month halved the rate of import rates on gold jewelry. So far in 2012, India has quadrupled its gold bullion import tax.

After last weekend’s cut by China’s central bank to the reserve ratio requirement – easing credit by enabling commercial banks to lend out more of the cash deposits they take – the State Council of China said Wednesday it will spend CNY36.3 billion ($5.7bn) over the next 12 months subsidizing household purchases of large electrical items, fuel-efficient cars and energy-saving lightbulbs.

Despite the cut in the reserve ratio requirement, however, lending by China’s four largest banks has “been flat so far this month” says the Shanghai Securities Journal.

Both the central and commercial banks were net sellers of foreign currency in April, the People’s Bank of China said this week, indicating an outflow of capital.

China’s 12-month trade surplus has halved from its peak above $300 billion of early 2009, according to data cited by the Financial Times.

Adrian Ash

BullionVault

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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