Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Premium Bonds Good, Bad or Ugly Investment? Here's What Return (Prize Wins) to Expect - 5th Dec 20
How to accomplish a technical analysis with the Forex - 5th Dec 20
What is life insurance and what are the benefits of having it? - 5th Dec 20
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Gold Hits $1714 New High, ECB is "Last Line" of Eurozone Defense

Commodities / Gold and Silver 2011 Aug 08, 2011 - 06:56 AM GMT

By: Ben_Traynor

Commodities

Best Financial Markets Analysis ArticleU.S. DOLLAR gold prices soared to a record $1714 an ounce in Monday's Asian trade – up 3% from last week's close – following Friday's US sovereign debt downgrade and Sunday's announcement by the European Central Bank that suggested a new phase in the Eurozone crisis.


Stocks and commodities sold off heavily Monday morning, while US Treasury bonds rose after the ECB said it will buy Eurozone government bonds.

Silver prices peaked at $40.31 per ounce in Asian trade – 5.2% up on last week's close - before easing back.

Euro gold prices hit another new record mid-morning in London – coming within 5 cents of €1200 per ounce – while on the currency markets the Euro lost 1% against the Dollar.

"With the Dollar weakening too [against other currencies], gold has burst through the $1,700 level and looks almost certain to be heading higher," says one gold bullion dealer here in London.

"What people are realizing is that Dollar and Euro currencies have real problems and I think that's manifesting in the gold price," adds UBS Wealth Management analyst Dominic Schnider.

The ECB "will actively implement its Securities Markets Programme" to buy government bonds on the open market, according to a statement released Sunday.

"The ECB is once again intervening as the last line of defense," says Jacques Cailloux, chief European economist at Royal Bank of Scotland in London.

Traders report that the ECB was active in the bond markets as soon as they opened on Monday.

The yield on Italian and Spanish government bonds fell sharply as their prices rose – a sign that the ECB's buying program is actively targeting those countries' bonds.

Italian 10-Year government bonds saw their yield fall to 5.3% – compared to a high of nearly 6.4% last week.

The yield on 10-Year Spanish bonds also dropped to around 5.3% – having hit nearly 6.5% last week.

The ECB's move "does encourage any maneuverable short positions to get out" says Mark Schofield, head of interest rate strategy at Citi.

"But the market has been about a reduction in long positions not new short positions" he added, implying the problem is longer-term investors selling out, rather than shorter-term speculation.

The ECB intervened in the bond markets – to the tune of €16.5 billion – in May last year in the weeks following the first Greek bailout. At the same time it sought to offset the potential inflationary effect of its bond purchases by raising the interest rate offered to banks to encourage deposits – a process known as sterilization.

"Given the far larger size of the Italian and Spanish debt markets... the ECB might need [to buy] €200 billion or more of [Italy's] debt stock, and at least €50 billion of Spanish debt," reckons Chris Scicluna, deputy head of economic research at Daiwa Capital Markets.

"I don't think that...€50 billion a week can be sterilized," warns ING Belgium economist Carsten Brzeski.

Sunday's ECB statement also called for "the prompt implementation of all the decisions taken at the Euro area summit".

The European Financial Stability Facility – the Eurozone's €440 billion bailout mechanism – was granted bond-buying powers following last month's summit. However, it will not formally receive these powers until the relevant legislation is passed by national governments – not expected until mid-September at the earliest.

Over in Washington, ratings agency Standard & Poor's carried out its threat to downgrade US sovereign debt on Friday – from AAA to AA+.

"The fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.

Moody's and Fitch, the other two major ratings agencies, have maintained their triple-A rating for US debt – although Moody's maintains a negative outlook.

On New York's Comex exchange, the net long position of bullish minus bearish contracts held by noncommercial– so-called speculative – gold futures and options traders jumped 7.3% in the week ended 2 August, according to figures from the Commodities Futures Trading Commission.

The rise was almost entirely attributable to a rise in speculative long positions, with speculative short positions barely changed.

Gold prices "are overbought at the moment" reckons Natalie Robertson, commodities strategist at ANZ Bank.

"If you look at technicals, [gold] could be vulnerable to some profit taking."

"We foresee physical buying if gold drops to sub-$1,650 levels," adds Standard Bank commodities strategist Walter de Wet, adding that supplies of scrap gold have "moderated substantially" in the last fortnight.

"Seasonally, Q4 is the strongest quarter for gold jewelry demand, and we would expect buying interest to ramp up in August."

"We had very good business on Saturday and Sunday," confirms T.K Chandran, managing director of DKTM Jewellery in southern India.

"Everybody who comes in wants to know whether gold prices will go up more."

By Ben Traynor
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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.


© 2005-2019 http://www.MarketOracle.co.uk - 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

6 Critical Money Making Rules