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Gold Holds Below €1000 But "Risk Trade" Revived by Greek Downgrade, Spanish Bank Warning

Commodities / Gold and Silver 2010 Jun 15, 2010 - 08:30 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE PRICE OF WHOLESALE BULLION for Dollar investor wanting to buy gold early Tuesday edged up to $1226 an ounce as stocks, commodities and currencies were also little changed.

Asian stock markets ended the day flat. European equities crept higher as the Euro ticked towards Monday's two-week high just below $1.23.

Crude oil held just above $75 per barrel, and silver prices crept back towards Monday's new June highs at $18.58 an ounce.

Gold priced in Euros held below €1000 an ounce (€32,000 per kilo).

"A lot of the risk trade has abated with a rally in the Euro," said a Chicago futures trader to Bloomberg on Monday – a "difficult session" according to one London gold dealer.

"That's the biggest reason to sell gold."

Gold recovered half of yesterday's earlier losses, however, after a further downgrade of Greek government bonds by Moody's Investor Services – a decision called "both surprising and unfortunate" by European commissioner Olli Rehn today.

The decision means Citibank and Barclays Capital will remove some of Athens' debt from their investment-grade government bond indices, forcing a sale of perhaps €20 billion worth by index-tracking fund managers.

Previously needing to raise €53 billion this year, Athens can now call upon the joint EU-International Monetary Fund rescue package, currently priced at €110bn.

"If the Spanish state has difficulty in financing itself outside Spain, then the difficulties will be even greater for those in the private sector," said Spanish bank BBVA's chairman Francisco Gonzalez on Monday.

Deutsche Bank notes that Eurozone banks must raise €700 billion over the next three years, just to repay maturing debt and interest payments.

"It's not easy to say why the Euro has spiked back up recently," writes Steven Barrow, chief currency strategist at Standard Bank in London.

"Most likely it is for no real reason other than the market is very short."

Comparing the single currency union with the United States, "The Eurozone is a lot closer to the edge [of a double dip recession] given the significant fiscal restraints.

"So...the Euro should peel away to parity over the long haul."

Across in the US, however, "The economic reports for May are rolling in," says The Atlantic magazine, "and so far they're pretty ugly.

"The economy [has] seemed to take a step back."

New data today showed US import price inflation slowing sharply as the Dollar rose on the currency market in May.

UK retail-price inflation rose at the fastest quarterly pace in 19 years, while Germany's ZEW economic sentiment survey showed a marked down-turn.

"The challenge for gold is to replicate the heightened ETF demand that occurred in the second half of May," says Edel Tully, chief metals strategist at Swiss bank UBS's London office.

"On the scrap-supply front, metal is visible, but this supply source is not at extreme levels. Jewelry demand from India and other regional hubs in Asia is also sedate."

Western gold ETF holdings "rose for the twelfth consecutive week" in the five trading days to last Tuesday, notes the VM Group consultancy in its weekly investment update.

In the leveraged US gold futures market, "Comex net longs rose for the second consecutive week."

Even so, "A lot of average Americans are eager to sell...[rather than] clamoring to buy gold," says the San Francisco Chronicle.

"Bubbles never blow up without the American investor class being overexposed to the item that's in the bubble," reckons Nick Zaharias, a hedge-fund consultant quoted by the paper.

He currently holds 30% of his family's assets in gold.

"If gold were near a peak, people would be buying, not selling gold at house parties," he says.

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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