London Gold Market Report
Gold Falls Through $1550, “Bulls Misjudged the Dollar” as Euro Crisis Sparks EU Wrangling
The U.S. DOLLAR gold price fell further on Wednesday morning, trading at 1-week lows beneath $1550 per ounce as world stock markets dropped and the Euro hit a fresh two-year low amid fresh debt woes in the 17-nation currency union.
The European Commission in Brussels accused Spain – where unemployment is now above 25% – of not doing enough to meet its deficit-reduction targets.
Spanish bond yields rose again, and credit default swaps on Spanish government debt – a form of insurance not triggered on Greek bonds despite last month’s restructuring – rose to new record highs.
Italy meantim failed to sell all €6.25 billion of new 5- and 10-year debt it offered investors at a new auction, paying markedly higher interest rates than at the last such sale in April.
“The yellow metal triggered some major stops as it moved down below $1570 and back below the trend line,” says Swiss refiner and finance group MKS’s daily note on the gold price.
“On [Tuesday's] move down, traders saw somewhat 856,000 ounces being exchanged” in US gold futures the note says.
Trading volume in US gold futures yesterday hit a new 2012 record according to Reuters data, leaping to 484,000 contracts and breaching both the previous high of late January and the current level of open interest outstanding.
“Gold continues to consolidate the last leg down, trading sideways for the past 2 weeks,” says strategist Russell Browne at Scotia Mocatta, also pointing to $1522 as support.
“The lows near $1520 underpin our greater bullish view for gold,” agrees a note from Barclays, also a market-making bank in the London gold market.
“Near term we expect a range to unfold under $1620,” says Barclays, adding that the bank’s analysts are “bullish for silver while above $26.00″ with an initial target of $29 per ounce.
Trading down to $1.24 for the first time since June 2010, the Euro curbed the gold price drop for European investors at €39,900 per kilogram.
Copper and other base metals led fresh falls in commodity prices, with silver bullion traded in London losing more than 4% to $27.57 per ounce.
Europe’s benchmark Brent crude oil slid to a 5-month low beneath $105 per barrel.
Ahead of new data on US energy stockpiled – expected to be “glutted” according to newswire reports – the price of West Texas Intermediate crude fell through $90 per barrel, a 6-month low when breached last week.
“Structurally we remain bullish on gold but clearly misjudged the strength of USD,” says today’s note from Standard Bank’s Walter de Wet.
“We have not seen any change in the underlying fundamental drivers of gold – global liquidity and real interest rates. To us, both still indicates a higher gold price going forward.
“[But] our FX analysts have adjusted their 3 month Eur/USD target to 1.15. If this is reached, gold denominated in dollars may struggle.”
After running on an anti-austerity ticket in this month’s election, French president Francoise Hollande was today told by the European Commission that “Budgetary consolidation remains one of [his] main policy challenges.
“Given the tensions on the sovereign debts, the French authorities need to specify the measures necessary to ensure that the excessive deficit is corrected by 2013 as recommended.”
French government bonds ticked lower Wednesday morning, nudging the interest rate Paris must pay to borrow up to 3.0%.
Last week the 10-year OATS yield hit arecord lows of 2.42%.
“The reason gold has come back into fashion in the last 10 years,” says Economist magazine US editor and author of new ebook In Gold We Trust Matthew Bishop, speaking to the Wall Street Journal, “is that people have lost faith in the 20th century religion of unbacked fiat money.
“They’re saying that the moment they don’t really trust governments with their money.”
German Bunds, UK gilts and Japanese government bonds all rose in price yet again early Wednesday as investors sold equities and bought government debt.
US Treasury bond prices also rose, with the 10-year yield pushed down to a new record low of 1.68%.
The 140-year average, according to Robert Shiller’s data at Yale University, is 4.66% per year. US Consumer Price Inflation was last pegged at 2.3% per year.
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
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