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Gold Adds 12% for Q2 as S&P Drops 11%, Forex "Echoes 2008" Meltdown

Commodities / Gold and Silver 2010 Jun 30, 2010 - 06:19 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE PRICE OF BOTH gold and silver bullion ticked higher from yesterday's sell-off early in London on Wednesday, rising as Asian stocks caught up with Wall Street's sharp losses but European shares rallied.

Recording an AM London Gold Fix of $1240.50 per ounce, gold stood almost 12% higher in Dollar terms for the second quarter of 2010.

Fixing at $18.74 per ounce today, silver stood 7.0% above the end of March.

New York's S&P 500 stock index ended Tuesday 11% down for the second quarter.

"The yellow metal firmly established itself as a reservable currency in the second quarter," says a note from Japanese metal conglomerate Mitsui's London team, "benefiting greatly as the sovereign debt crisis in Europe came to a head."

Gold has now recorded seven quarterly gains on the run, Mitsui notes, outrunning both silver (now with six consecutive gains) as well as platinum group metals (breaking their run of 5 quarterly gains with a drop of 6.5%).

Crude oil and base metals today rallied from Tuesday's hard sell-off, but broad commodity indices remained 7% lower for the April-June quarter.

Commodity currencies the Canadian and Aussie Dollars both bounced on the forex market, but held more than 10% lower from the end of the first quarter against the "risk averse" Japanese Yen.

"This is exactly what happened in the last quarter of 2008 following the spread of the banking crisis from the US to Iceland, the UK and Europe," says Simon Derrick at Bank of New York Mellon.

"The recent and marked underperformance of commodities and commodity-based currencies relative to both the Swiss Franc and Japanese Yen could be an early warning signal that sentiment is taking a significant turn for the echo of the way it did in late 2008."

Bloomberg adds that the Baltic Dry Index of shipping rates – a key indicator of global economic activity – completed its 23rd losing session on Tuesday, matching the streak to mid-August 2008 "and representing a 42% retreat during the current run."

"Gold continues to push towards the $1300 mark which is likely to be hit in the weeks to come," reckons Axel Rudolph, writing his latest technical analysis for Commerzbank clients.

"Only a daily close below the 55-day moving average at 1203.20 would lead us to question our bullish outlook. [Below that] failure at 1196 could indicate the formation of a significant top."

"[Gold] is either building a top, or getting ready for another leg higher," says Scotia Mocatta's daily note, "and we remain bullish with a stop loss at 1223."

"The weekly chart for gold is still nicely bullish," says Phil Smith in Beijing for Reuters Technical, but "volume has been tailing off [in the gold Futures market], which is consistent with forming another top."

New economic data meantime showed UK consumer confidence falling less than analysts forecast in June, but house prices disappointed the City by showing an average 8.7% year-on-year rise on the Nationwide's index.

Sterling today retreated from yesterday's new 20-month high vs. the Euro, enabling the gold price in British Pounds to rally from a 5-week low of £815 an ounce.

In the United States, estate agency RealtyTrac said overnight that 31% of all US home sales were due to foreclosure in the first quarter.

Foreclosed prices undercut non-distressed prices by 27% on average.

"Markets have swung towards fears of a double-dip slowdown, and risk-aversion is palpable," says Morgan Stanley's chief US economist Richard Berners.

"We still see a moderate, sustainable recovery as the most likely outcome. But we also think that new uncertainty around economic policies at home and abroad is creating downside risks to US and global growth."

Over in Frankfurt tomorrow, the European Central Bank will see €442 billion of 12-month "long-term refinancing operations" expire, but analysts remain divided over the likely impact on bank-to-bank liquidity.

Less than €132bn was taken today from the ECB's latest 3-month LTRO, much less than some analysts forecast.

Interbank lending rates, however – known as Libor – leapt once again ahead of Thursday's 12-month expiry, driving the 3-month cost of funds up to a 10-month high of 0.706%.

The gold price in Euros ticked above the middle of the €1000-1020 per ounce range it's traded within since June 10th.

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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