Gold Hits New GBP Record, Correlation with Euro Turns Negative
Commodities / Gold and Silver 2010 Mar 01, 2010 - 07:31 AM GMTBy: Adrian_Ash
THE WHOLSALE PRICE of physical gold bullion ticked lower Monday lunchtime in London after recording its best Gold Fix in a week for US holders and hitting new all-time highs for UK investors.
European stock markets cut their early gains, while UK and Eurozone government bonds fell.
"All paper currencies will continue to lose their purchasing power as they have over the last 100 years or so," said Swiss investment advisor Marc Faber, now based in Thailand, to the Financial Times in Hong Kong last week.
"I suggest that people accumulate gold. They shouldn't market-time the gold price, because we're going to have volatility...But I will not sell my gold, not for as long as [the current US administration] is structuring fiscal, monetary and foreign policies.
"In the US, I don't think we will have real [positive] interest rates at any time in the next 10 years."
Dropping to an 11-month low on the forex market, the Pound fell beneath $1.48 early Monday after weekend opinion polls showed a "hung parliament" ever more likely – with no single political party in charge – at the UK election that must happen by June.
The Euro also fell hard, down 1.5¢ despite reports of a drop in Eurozone joblessness, stronger manufacturing orders, and an unexpected rise in import prices.
The gold price in Sterling hit a record London Gold Fix above £742 an ounce, some 299% above its price of 1st March a decade ago.
Gold priced in the Euro rose above €26362 an ounce, a record-high monthly start more than 170% above this time in 2000.
"I am confident Greece will successfully refinance itself via the means that we are now studying...involving private partners, public partners, or both," said French finance minister Christine Lagarde in a Sunday interview, before a report in the Wall Street Journal – confirming leaks made two weeks ago – said state-owned banks and private-sector investors from France and Germany may work together to buy €30 billion of Greek bonds.
Greece needs to raise €54 billion this fiscal year.
Over in Athens today, the European Union's finance commissioner, Olli Rehn, told Greek politicians to extend their deeply unpopular spending cuts to reduce their record peace-time deficit.
"Despite what economists everywhere say about being in 'uncharted territory' with quantitative easing," writes Dylan Grice in Société Générale's much-followed Popular Delusions note, quoted today by the FT's Alpha blog, "we know that if you keep monetizing deficits eventually you get inflation, and we know that once you're on that path it can be extremely difficult to get off it.
"The real problem is that inflation is an inherently political variable and that concern over debt sustainability and unfunded welfare obligations leaves us more dependent on politicians than we have been in many decades."
"The bottom line," agrees Steven Barrow at Standard Bank in London, "is that we don't just seem to be standing on the edge of a battle between the market and Greece, but a battle between the market and G20 policymakers.
"With the press speculating that policymakers in the US and UK have lost the battle over [bankers' bonus] compensation, they could get a lot tougher when it comes to market speculation. This could mean that 'speculators' will drift away from more obvious 'speculative' tools like [credit default swaps] to less obvious tools – like Euro shorts."
Latest data from the international money markets show a new record for bearish bets held by speculative players against the Euro, now trading 11% below late Nov.'s peak vs. the Dollar.
Gold stands 9% below its record US-Dollar price of early Dec.
The daily correlation between changes in the Dollar-gold price and the Euro-Dollar exchange rate last week fell into negative territory for the first time in 11 months, analysis by BullionVault shows.
Typically averaging +0.52 on a monthly basis since the start of Jan. 2000, the correlation between Gold and the Euro fell to -0.13 by Friday's finish, meaning that the Euro fell as gold prices rose.
New data from the US gold futures and options market meantime show that the bullish position held by speculative players jumped to a 4-week high by last Tuesday's New York close.
Swelling by 12.6% from a fortnight earlier, the speculative "net long" position – meaning the number of bullish minus bearish contracts held by hedge funds, money managers and private individuals – jumped at its fastest pace since last Sept., rising to the equivalent of 782 tonnes.
Averaging 549 tonnes equivalent since the start of 2005, it peaked above 1000 tonnes equivalent in late Oct. '09.
Interest in exchange-traded gold trust funds failed to revive, however, with the volume of gold bullion held to back shares in Europe's largest gold ETF, the GBS trust, staying unchanged at a 13-month low of 119 tonnes.
New York's SPDR Gold Trust dropped one tonne last week to 1107 tonnes.
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 2010
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