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Gold Bounces with Euro as Trichet Hints at Greece Bailout

Commodities / Gold and Silver 2010 Feb 09, 2010 - 08:53 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD slipped from its best level in 3 sessions for both US and UK investors on Tuesday in London, easing back as the Euro currency and Eurozone stocks also cut their early gains.

Government bonds ticked lower, while US crude oil contracts pushed up towards $73 per barrel.


Silver erased a 1.6% rally as New York opened for business, holding unchanged from last week's 5-month closing low.

"The pull back is not that great compared to previous corrections," says bullion bank Scotia Mocatta, studying the bullish position of speculative traders in gold futures and options – now 15% smaller from the middle of Jan.

"But this could be taken either as a sign that the market remains relatively bullish still, or conversely it also raises the potential for more liquidation."

"Greater declines [in gold investment positions] may be evident in the coming week's data," says the VM Group in London.

Adding together the "net long" position of speculators in US and Tokyo futures, plus the outstanding size of the major gold ETF trust funds worldwide, the VM Group's Precious Metals Investment Weekly for Fortis Nederland Bank now says that global investment has shrunk 5% over the last four weeks.

China Investment Corp. – one of the world's largest sovereign wealth funds – took a $156 million exposure to gold prices at the tail-end of 2009, new US regulatory filings show.

Although small in terms of the Chinese fund's total $300bn under management, CIC's position in New York's SPDR Gold Trust shows a continuation of the fund's strategy," says Japanese metals conglomerate Mitsui, "which...saw it divert around $10bn into commodity-related concerns."

New data today confirmed that China overtook Germany in 2009 as the world's No.1 export nation, as German exports of goods fell by 18% – the sharpest year-on-year since 1950.

"The Dollar might have further to rebound as investors seek out safe-havens and as carry trades are unwound," Scotia Mocatta adds in its latest Precious Metals Monthly, but "this should not prevent gold prices from rallying as well.

"After all, the Dollar and gold both managed to rally in 2004 and in the second half of 2008."

"We'd advise taking a defensive view of the Euro," says Standard Bank's Steven Barrow today, because the "debt crisis in the Eurozone is not likely to be resolved in a benign way.

"Policymakers like those at the Fed and Bank of England have essentially chosen inflation through aggressive quantitative easing. Others, like the ECB, have opted not to take this route with the consequence that some members, like Greece, could be heading for default."

European Central Bank president Jean-Claude Trichet today raised hopes of a Eurozone rescue for the Greek government's huge fiscal deficit, by changing his schedule to include a meeting this Thursday discussing the problem.

"There is nothing like a change in a VIP's travel plans to excite the imaginations of market participants," said Stephen Lewis at London's Monument Securities on hearing the news.

Wall Street's S&P index jumped 1% at the start of trade Tuesday, remaining closely tied to the path of Euro/Dollar exchange rates and almost exactly Nailed to the Dollar Price of Gold.

New data here in the UK meantime showed Retail Sales falling faster than expected last month, even as the UK's trade balance worsened sharply.

"Amid the recent flight to safety, gilts have missed out," notes the FT's Alpha blog after the first auction of UK government debt since the Bank of England suspended its quantitative easing program drew tepid demand.

"Gilts are also lower this morning, no doubt unsettled by the latest Populus opinion poll, which showed support for the Labour party up 2 percentage points to 30% and increasing the possibility of a hung parliament."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 2010

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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