Volatile Gold Holds Support
Commodities / Gold & Silver 2009 Dec 08, 2009 - 08:38 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD reversed Monday's 2.4% rally vs. the Dollar early today, only to bounce sharply as world stock markets fell and the Euro currency dropped to a one-month low beneath $1.4750.
The gold price in Sterling and Euros held above £700 and €775 respectively.
Crude oil fell through $73 per barrel. US Treasury bonds rose, pushing yields lower.
European equities lost almost 2.0% by lunchtime in London.
"Key technical support at 1138 once again found good gold-buying interest [on Monday]," says a technical analysis from Scotia Mocatta – "the low two weeks ago when the Dubai announcement caused a quick drop in the metal."
"The VIX [volatility index of US stock options] must approach 20% before we would see upside for precious metals," says Standard Bank, because only that would "signal a substantial increase in risk appetite."
Greece's government bonds were today put on "negative watch" by credit-rating agency S&P, while Fitch Ratings downgraded the Eurozone's seventh-largest economy below A-grade for the first time in 10 years.
Fitch cited "concerns over the medium-term outlook for public finances given the weak credibility of fiscal institutions and the policy framework."
It also confirmed the A+ rating of BHP Billiton, the world's biggest diversified mining group.
"There's a lot of rumors about Hungary's debt too," said a City forex trader by phone to BullionVault today. "And Ireland.
"If the break of $1.4750 follows through, we could see the Euro fall hard to year-end."
Back in the bullion market, rumors "doing the rounds" in Hong Kong said an Asian central bank was buying gold.
Several analysts agreed that the gold price's "unexpected reaction" to Friday's data – dropping 5% after the United States reported its smallest monthly job losses since Feb. 2008 – caught traders off guard.
"Lax monetary policy and low interest rates are common to both the 1970s and the past nine years," reports the WSJ Europe, quoting Harvard professor Jeffrey Frankel.
"I imagine tighter policies will [hurt Gold] this time around," says HSBC analyst James Steel. Higher rates "will be the death knell of the gold rally.
"But there is no sign of this on the horizon yet."
Federal Reserve chairman Ben Bernanke confirmed Monday that "subdued" economic growth will keep US interest rates at zero for an extended period.
Canada's central bank today kept its target interest rate at 0.25% for the eighth month running.
"The herd [in gold] seems to have turned for now," says Phil Smith for Reuters Technical India today, "but mainly as a result of the jump in the value of the Dollar."
"There is very clearly a large and disconcerting 'excess of demand' for work compared to the jobs that are presently available," notes Dennis Gartman of the eponymous investment letter, "with more than 9 million workers saying [in Friday's US data] that they are working part-time because of 'economic reasons'."
Over in Tokyo today, the Japanese government – already owing well over 200% of annual economic output in bonds – announced a new stimulus package worth $81 billion.
Earmarked for first-time buyer home loans, green technologies and consumer subsidies, "This may help the economy somewhat," said Mizuho's chief economist Yasunari Ueno, "but it doesn't even begin to address the more fundamental issues [of] weaknesses in the global economy and deflation."
Here in London, the UK Treasury released full details of the "toxic" assets guaranteed by its Asset Protection Scheme, with the Royal Bank of Scotland receiving £282 billion ($459bn) of tax-funded support.
"Probably the most striking thing is that over half the assets (£167bn) are not in the UK," says the FT's Alpha blog, "with a quarter estimated to come via the disastrous acquisition of ABN Amro."
Lloyds Banking Group today began a newspaper advertising campaign to alert shareholders of its £13.5 billion ($22bn) rights issue, aimed at removing the UK's largest High Street bank from government insurance.
To leave the US Troubled Asset Relief Program, Wells Fargo would need to raise $25bn, the Wall Street Journal reports.
Citigroup would need $20bn, the paper says, diluting existing stockholders by more than 20% at the current valuation – "a pretty tough pill to swallow," according to a New York source.
By Adrian Ash
BullionVault.com
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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2009
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