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Gold Hits New Euro High, Speculative Froth Evaporates

Commodities / Gold and Silver 2010 Feb 15, 2010 - 07:53 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD rose sharply in early London trade Monday, recording its highest-ever Gold Fix in Euros as global stock markets rose, government bonds slipped, and the major currencies were little changed.

Touching $1100 an ounce for the first time in 7 trading days, the Gold Price in Dollars stood 5.2% above early Feb.'s 14-week low at $1045 an ounce.

Financial markets in China – where the government raised banking reserve requirements for the second time this year on Friday – were closed for the first of four public holidays to celebrate the Lunar New Year.

US markets will re-open on Tuesday after Presidents Day.

"We are looking at a possible change in the intermediate trend," says Phil Smith in his Reuters India Technical Gold analysis, "but it is early days and the chart still indicates downside potential.

"Gold still has a high correlation with stocks and a high negative correlation with the Dollar."

US-Dollar Gold Prices and the S&P 500 stock index have only moved in opposite directions on nine of the 29 trading days in 2010 so far, with a one-month correlation of +0.93 by Friday's finish.

That figure would stand at +1.00 if they moved perfectly in lockstep together.

Gold and the Euro, on the other hand, have moved in opposite directions vs. the Dollar on 10 occasions, with a one-month correlation of +0.83.

Losing more than 10% against the Dollar in the last nine weeks, the European single currency today held steady near $1.3600.

The Gold Price in Euros meantime came within 0.5% of Dec.'s all-time intraday high, recording its best-ever London Gold Fix above €807 an ounce.

"Gold has attractions for those managers of private institutional funds who are wary not only of the Dollar but of Sterling, the Yen and the Euro," writes senior columnist John Plender in the Financial Times.

"Gold, by contrast, has no fiscal dimension...And for gold investors in the current period of exceptionally low interest rates, the opportunity cost – the income forgone on other investment opportunities – is unusually low."

New data released after Friday's close by US regulator the Commodity Futures Trading Commission showed a further retreat from the record speculative "froth" in Gold Futures and options reached as the metal hit all-time highs against almost all major currencies in late autumn 2009.

Amongst speculative traders, the net long position of bullish minus bearish bets shrank 14% in the week-ending Tuesday night (Feb 9th). Now equivalent to 694 tonnes of gold, this "non-commercial" net long has now fallen at its fastest pace month-on-month since the Lehman Bros.' collapse of fall 2008.

Bullishness amongst "commercial traders", in contrast – meaning those gold miners, refineries and bullion wholesalers who use the Gold Futures market to hedge their trading book – jumped to a 10-month high of almost one contract in every three they held last week.

Just shy of the commercial traders' five-year average, it rose from 27.5% to 30.1%.

"The week ahead looks to be important for precious metals," said one London dealer's note this morning, "as gold, platinum and palladium all have trend-lines converging. The inevitable break of one of these levels will give us a good technical signal."

Silver prices meantime held flat early Monday, trading tight around last week's finish of $15.55 per ounce.

Crude oil ticked higher but the broader commodities market fell after Japan reported a smaller-than-expected rise in Dec.'s industrial production.

Following Greek government complaints that "speculators" were driving the country's bond prices lower and maliciously selling the Euro for profit – claims dismissed as "piffle" by The Economist magazine – Madrid's El Pais newspaper said yesterday that Spain's secret service is investigating "speculative attacks" on the nation's fiscal position.

"Greece must take extra measures to make its recovery plan credible," said European Central Bank president Jean-Claude Trichet this morning ahead of Tuesday's key meeting of finance ministers.

Last week's European Union summit failed to produce any concrete action on Greece's plunging government bonds and yawning public-purse deficit.

Fifty-three per cent of German voters surveyed this weekend by Emnid pollsters for the Bild am Sonntag newspaper said Greece should be expelled from the Eurozone "if necessary".

"Solving this problem cannot be about aid for Greece," announced coalition-government member Otto Fricke to Welt am Sonntag.

"If anything, it's about keeping any damage away from German tax payers."

By Adrian Ash

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 , 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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