Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Breaks $1200 as Europe's Secretive Bank-Stress Tests Fail to Reassure Investors

Commodities / Gold and Silver 2010 Jul 23, 2010 - 07:07 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD rose to a 5-session high above $1200 an ounce early Friday, showing a week-on-week gain for US, Euro and Japanese investors but holding unchanged against Sterling and Swiss Francs.

Government bonds edged lower as silver bullion held flat and crude oil slipped back through Thursday's 11-week high of $79 per barrel.

Yesterday's 2% gain on Wall Street – plus a strong rise in Asian stocks – failed to spur more than a 0.3% rise in European equities, as investors and traders awaited the "stress test" results on 91 regional banks.

"The correlations for gold prices are all over the place at the moment," says Phil Smith at Reuters Technical in Beijing, "and it is actually high-positive with the US Dollar – which is not normal.

"Breakdowns in 'normal' correlations generally point to a switch in the attitude to risk, and gold seems to be undergoing a rethink by some investors after its huge rally over the past years."

Undertaken by what the Associated Press calls the "the little-known" Committee of European Banking Supervisors (CEBS) here in London, "the release of bank stress-test results is unlikely to be the silver bullet that guarantees a rapid normalization of the financial system," says UniCredit's chief economist, Marco Annunziata, "given the recalcitrant and rather secretive way in which it has been prepared."

Rumors in the European press saw Greece's Atebank drop 4% of its value this morning, while Madrid's El Pais said Spain's "caja" savings banks were likely to fail.

"The ratio of Tier I capital, reserves and preferred stocks that an institution must hold to survive the stress test's assumed risks comfortably is 6%," says the paper, "although the legal requirement is 4% minimum."

A survey by Goldman Sachs of 376 professional investors and analysts said today that 10 of the 91 European banks tested may "fail", and so need to raise fresh capital from shareholders.

On the economic front today, Germany's Ifo business sentiment index came in sharply ahead of expectations, as did the UK's latest GDP data, showing 1.1% growth between April and July – the fastest pace in four years.

Both the Pound and the Euro jumped in London trade, nearing Monday's 11-week highs against the Dollar and driving the gold price down to £775 and €925 per ounce respectively.

"There is little doubt that the need to implement a credible medium-term fiscal consolidation strategy is valid for all countries now," writes European Central Bank chief Jean-Claude Trichet in today's Financial Times, concluding the newspaper's week of 'Austerity vs. Stimulus' debate.

"The ECB will contribute to consolidate a confident economic environment by ensuring price stability...Sound public finances are [also] a decisive component of economic stability and sustainable global growth."

Across in Washington on Thursday, however, "In the short term I would believe that we ought to maintain a reasonable degree of fiscal support, stimulus for the economy," said US Federal Reserve chairman Ben Bernanke to the House Financial Services Committee.

The current bull market in gold bullion and other precious metals "is the direct result of the evident profligacy of governments the world over," says John Browne, senior market strategist at asset-management group Euro Pacific Capital.

"Spendthrift politicians in Washington, London, and Tokyo, have caused people to lose faith in paper currencies."

"Spiraling deficits, ballooning government debts and risk of eventual monetization" are all supporting gold prices, agrees BMO Global Commodities strategist Bart Melek, quoted today at MineWeb.

"The expectation that the Fed, the ECB and other central banks will largely be on hold well into 2011 are additional factors that are likely to keep investors buying gold and willing to pay a premium for the insurance properties the metal offers."

"We believe that US interest rates will remain low for much longer," wrote Walter de Wet at commercial and bullion bank Standard Bank yesterday.

Citing the Taylor Rule – which suggests interest rates "by balancing the Fed's two major targets, inflation and unemployment" – the Fed will keep rates at zero until "at least 2012," reckons the Standard Bank team, and "low rates in the medium term are bullish for gold, despite our view that inflation will remain low.

"Confidence in the strength of emerging-market currencies [also] indicates that risk appetite for precious metals may remain firm."

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.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in