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Gold Near Record High as Eurozone Faces Heavy Re-Financing in July

Commodities / Gold and Silver 2010 Jun 28, 2010 - 06:49 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD was little changed overnight in Asia and early Monday in London trade, holding within 0.5% of last week's all-time Dollar high as Tokyo stocks slipped but European share crept higher.

The MSCI index of world equities lost 3.5% last week in Dollar terms. Spot gold prices dropped $1 per ounce to $1256.

Crude oil and energy prices today ticked back from Friday's surge, but overall commodity markets were little changed, with silver prices also flat.

"August gold futures matched Friday's high of $1259.50 overnight," notes a London analyst.

The gold price in Euros rose towards last Friday's two-week high at €32,800 per kilo, as the Euro held flat near $1.2350.

New data today showed broad M3 money supply shrinking in May for the fourth month running across the 16-nation currency zone.

The Japanese Yen was also steady at ¥89 per Dollar on news that sales by large Japanese retail stores sank 4.0% last month from April.

Gold priced in Yen ticked higher to €3624 per gram, some 3.5% below mid-May's new 27-year high.

"Trading has slowed to pedestrian pace," says one Hong Kong dealer today.

Consumer gold demand across Asia and particularly the Indian sub-continent tends to flag over the summer, rising again as the autumn Diwali festival approaches.

But "Imports [to India] might be 75% less than June last year because of the high prices," says Suresh Hundia, head of the Bombay Bullion Association.

"If gold prices go up further, then we might see a steep rise in recycling," reckons Shrikant Zaveri, chairman of Tribhovandas Bhimji Zaveri, the oldest gold jewelry retailer in India – the world's No.1 private consumer market for gold.

"We have seen a little shift in the buying pattern toward gold coins and bullion. That might probably continue."

On the geopolitical front this weekend, "Serious challenges remain," said the government leaders meeting at the G20 summit in Toronto yesterday.

"We are going to avoid [the 1930s'] mistake" of withdrawing stimulus before the economy heals, added US Treasury secretary Tim Geithner. But he agreed to the G20's joint vow to "deliver fiscal sustainability", specifically aiming to halve each nation's budget deficit by 2013 and reducing outstanding debt by 2016.

Following last month's €110 billion rescue package, Greece said today it will return to the bond market in July with a €4 billion debt issue.

Spain must finance a cash deficit next month of perhaps €15bn, as well as €24.7bn in redemptions on existing bonds, says analyst Javier Pérez de Azpillaga at Goldman Sachs.

This coming Thursday marks the end of the European Central Bank's "long-term refinancing operation" for Eurozone banks, with perhaps €70bn of liquidity expiring completely according to Luca Cazzulani at Unicredit.

Analysts at Barclays Capital reckon that Spanish, Irish and some Italian banks have become most dependent on ECB finance since 2007.

"For swingeing budget cuts to work in countries like Greece, Ireland and Spain, policymakers need to retain the confidence of the people," says Steve Barrow, chief currency strategist at Standard Bank.

"Right now, they seem to be losing this confidence, especially in Greece [where] strikes are a very regular occurrence [and] we have seen violence as well.

"Electorate discontent and political change are likely to feed the deep scepticism that exists in the [bond and currency] market."

At the central-bank level, "Central bankers have to think in the long term as custodians of national wealth," says Rhona O'Connell of GFMS Analytics, writing at MineWeb.

Noting last week's UBS survey results – which said 1-in-4 reserve managers now favors gold as the "most important" asset of the next 25 years – "the shifting tides in sentiment are informed by increased concern over fiscal imbalances, currency dislocations and sovereign risk, all of which have escalated over the past eighteen months," O'Connell says.

Last Thursday, gold-and-silver miner Coeur d'Alene said that China is buying and processing production from the company's new Kensington Gold Mine in Alaska.

State-corporation China National Gold – the No.1 gold miner in what it now the world's No.1 gold mining nation – will process ore delivered from Kensington in the first such deal between the People's Republic of China and a US precious metals mine.

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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