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Gold and Silver Fall as Fresh Crisis Whacks the Euro

Commodities / Gold and Silver 2010 Mar 24, 2010 - 08:30 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleWHOLESALE GOLD and silver prices fell once again on Wednesday morning in London, dropping almost 2% for Dollar investors as world stock markets fell together with government bonds, commodities, and non-US currencies.

The Euro sank to a 10-month low against the Dollar after Fitch Ratings downgraded the status of Portugal's long-term government debt.


European Central Bank policy-maker Lorenzo Bini Smaghi told Germany's Die Zeit newspaper that "Those who are interested in economic and monetary stability in Europe should be against" the Washington-based International Monetary Fund (IMF) having any role in bailing out struggling governments like Greece.

"To make a provocative statement: People should go to the German constitutional court if the IMF is called in."

The gold price in Euros today held above €817 an ounce as the single currency fell, almost level with last week's finish after recovering a 0.9% drop.

Silver prices for Euro investors were also little changed, trading north of €400 per kilo.

Gold priced in Dollars, however, flirted with 6-week lows at $1090 an ounce after recording its lowest London Gold Fix since Feb 25th.

Silver today recorded its lowest London Fix since March 2nd.

"[Precious metals] are holding relatively well all things considered" said one London dealer on Wednesday, pointing to the rising Dollar and weakening oil.

"Gold is holding quite well despite the Euro collapsing," agreed Michael Kempinski at Commerzbank in Luxembourg, speaking to Dow Jones Newswire.

Typically moving in the same direction against the Dollar, the price of gold and the Euro have split apart this month, cutting their daily correlation from a long-run average of +0.51 to virtually zero.

Gold's correlation with the Euro/Dollar exchange rate would stand at +1.0 if they moved exactly in lock-step. A reading of minus 1.0 would mean they moved precisely opposite each day.

"The market remains edgy," says a note from MKS Finance, part of the Pamp refinery group in Switzerland, "and investors should expect more volatility in the coming days."

Wednesday's fresh 0.8% drop in the Euro came despite a raft of strong forward-looking data from Germany.

The currency zone's single largest economy saw the Ifo survey of business expectations rise sharply this month, as did the Markit survey of manufacturing and service-sector managers.

Crude oil and other commodity prices today fell some 1.3% on average after a sharp drop in transportation sales weighed on last month's durable goods orders report.

"I don't believe this is yet the time to be tightening monetary policy," said San Francisco Federal Reserve president Janet Yellen – the White House's candidate for Fed vice-chairman – in a speech earlier this week.

Zero interest rates are "currently appropriate in my view," she explained, "because the economy is operating well below its potential and inflation is subdued."

"[US] monetary policy is likely to continue to be accommodative for an extended period of time," confirmed Chicago Fed president Charles Evans, speaking in Shanghai and defining "extended period" as six months or longer.

Here in London meantime on Wednesday, Labour finance minister Alistair Darling crossed a picket-line of striking civil servants to deliver his last government budget before the UK General Election, due before June.

Promising "to bring down borrowing [from a record 14% of GDP] in a way that does not damage the recovery or frontline services people rely on," the Chancellor's speech saw the Pound fall through $1.49, its lowest level in two weeks and just 1¢ above a 10-month low.

The gold price in Sterling turned higher

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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