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Gold Recovers as Markets Weigh Volcano and Sovereign Debt Default 'Black Swan' Risk

Commodities / Gold and Silver 2010 Apr 20, 2010 - 07:45 AM GMT

By: GoldCore

Commodities

Best Financial Markets Analysis ArticleGold went up to $1,137/oz before dipping slightly in New York yesterday but it then recovered ending with a loss of 0.06%. It has risen from $1,135/oz to $1,142/oz in Asian and early European trading this morning. Gold is currently trading at $1,142/oz and in euro and GBP terms, gold is trading at €847/oz and £742/oz respectively. Gold has recovered much of the losses from Friday and gold's fall was as much to do with dollar strength and oil weakness last week as it was to do with the Goldman allegations. Indeed gold has already recovered much of the losses from Friday especially in euro and sterling terms.


This morning, Greece's borrowing costs more than doubled at an auction of three-month bills amid concern that the nation will default unless it taps a bailout package brokered by the European Union. With the real risk of Greece becoming the first major industrial nation to default on its debt, euro gold looks set to overcome its recent (nominal) record high of €857 per ounce. The mini herd panic that markets succumbed to last Friday appears to have abated. The Goldman news if anything is bullish for precious metals as it may lead investors to evaluate overweight allocations to financials and to equities in general. Astute long term buyers and bargain hunters have used the "Goldman panic" to buy gold on the dip.


Gold in EUR - 5 Day (Tick)

Inflation concerns have not been eased by the latest inflation data from the UK (see Newsbelow) and Germany. Producer prices in Germany rose 0.7 percent in March, compared with no change in February, the Bundesbank said today. Bloomberg reports that Germany accounted for 134 metric tons of retail investment demand last year, more than all of North America, according to London-based research company GFMS Ltd. The total doesn't include fund purchases, jewelry or bar hoarding. Given the uncertainty in the eurozone, German investment demand looks set to remain high for the foreseeable future especially give the Germans historical memory of currency crises and hyperinflation.

The Icelandic volcano is a classic 'Black Swan' and should it continue to erupt or should the larger volcano in Iceland erupt as well, it may have serious repercussions for the eurozone economy and indeed our integrated global economy. Sovereign states already greatly weakened by the financial and economic crisis, are not in a position to cope with having to bail out national airlines and other sectors that are being badly affected by the travel chaos gripping Europe. As ever, the rare and unexpected 'Black Swan' is an important reason to own financial insurance by having an allocation to gold.


Gold in EUR - 30 Day (Tick)

Silver
Silver has risen from $17.75/oz to $17.95/oz this morning in Asia. Silver is currently trading at $17.90/oz, €13.29/oz and £11.63/oz. While silver holdings in the silver ETF have fallen, more important CFTC positions on silver show that silver one positions are a massive 40.4% from their high of March 2003 - suggesting that silver still remains undervalued vis-à-vis gold.

Platinum Group Metals
Platinum is trading at $1,700/oz and palladium is currently trading at $538/oz. Rhodium is at $2,950/oz.

News
Consumer price inflation in the UK rose more than expected in March, led by knock-on effects from gas bills that were flat last month after falling a year ago. Higher fuel costs and fares for air transport also contributed to the rise in the annual rate of CPI (NYSE: CPY) to 3.4 percent. The RPI measure, which includes more housing costs, also rose more than expected to its highest since September 2008.

An earthquake that hit Kalgoorlie, a Western Australian town at the center of the state's gold and nickel industries, shut down the area's biggest mining operation, part-owned by Barrick Gold Corp. The Super Pit, which produces as much as 850,000 ounces of gold a year, was evacuated and should gradually re-open today. All mines were evacuated and all miners accounted for, said Paul Howes of the Australian Workers Union. It was the strongest earthquake to hit the region in 50 years, Geoscience Australia said.

This update can be found on the GoldCore blog here.

Mark O'Byrne
Director

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