Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19
Central Banks’ Gold Buying and Repatriation Spree - 28th Nov 19
Another Precious Metals’ Reversal Coming Right Up! - 28th Nov 19
Stock Market 100% Measured Moves May Signal A Top - 28th Nov 19
Don’t Look for Investing Advice in the Media - 28th Nov 19
Why You Should Buy Trailer Park Stocks - 28th Nov 19
Will YouGov General Election Forecast 2019 be as Wrong as their REAL Forecast was for 2017? - 28th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

Gold "Seeing Benefit from Safe Haven Demand" as "Political Void" sees Italian Debt Yields Soar

Commodities / Gold and Silver 2011 Nov 09, 2011 - 09:18 AM GMT

By: Ben_Traynor


Best Financial Markets Analysis ArticleU.S. DOLLAR gold bullion prices jumped to $1797 per ounce Wednesday lunchtime in London – more than 3% up from the same point a week earlier – as the European debt crisis continued to engulf Italy.

Silver bullion also rallied around lunchtime – though it remained just below $35 per ounce, where it started today's London session.

Italian 10-Year bond yields meantime breached 7.4%, following Wednesday morning's announcement by clearing house LCH Clearnet SA that it will raise the amount of margin collateral Italian debt traders must posts against potential losses.

Italian 10-Year spreads over German bund yields hit 520 basis points (5.2 percentage points) – while spreads over US Treasuries approached 500 bps – as US, UK and German government bond prices all gained.

"The upwards pressure on Italian bond yields and concern generally for peripheral EU countries has increased the demand for safe haven assets and gold has benefited from that," says James Steel, New York-based precious metals analyst at HSBC.

The Euro dropped 1.5% against the Dollar this morning, while Euro gold bullion prices climbed to €42,322 per kilogram (€1316 per ounce) – over 5% up on the same time last week.

European stock markets meantime sold off heavily, with the FTSE down 1.9% by Wednesday lunchtime – while Germany's DAX was off 2.7%.

Gold bullion briefly breached the $1800 per ounce mark during Tuesday's US session – before falling 1.4% in a little over two hours following news that Italian prime minister Silvio Berlusconi is to step down after Italy's parliament approves new austerity measures. 

Although it won Tuesday's key budget vote, Berlusconi's government was backed by only 308 out of 630 members – with opposition members choosing to abstain – suggesting it has lost its majority.

Italy's president Giorgio Napolitano favors creating a national unity government along the lines of that being negotiated in Greece, according to news agency Reuters. Berlusconi, however, said Tuesday that the only option is a new election.

Over in Athens, Greece was still without a new prime minister Wednesday lunchtime, as politicians continued a third day of negotiations.

"Southern Europe steps into a political void," says one London gold bullion dealer.

Elsewhere in Europe, Spain's two largest lenders – Banco Santander and Banco Bilbao Vizcaya Argentaria – have announced changes to the way they calculate risk-weightings on their assets, following calls from European regulators for banks to maintain higher core capital ratios of around 9%, newswire Bloomberg reports.

So-called risk-weighted asset optimization allows banks to increase capital ratios without selling assets, reducing lending or asking shareholders for more money.

"By allowing sophisticated banks to do their own modeling, we are allowing the poacher to participate in being the gamekeeper," says Adrian Blundell-Wignall, deputy director for financial and enterprise affairs at the Organisation for Economic Co-operation and Development.

"That risks making core capital ratios useless."

"It's probably not the highest-quality way to move to the 9% ratio," agrees Neil Smith, Dusseldorf-based bank analyst at German bank West LB.

Other European banks have confirmed they intend to use the practice to reach the 9% threshold – including Germany's Commerzbank and Italy's Unione di Banche Italiane – while Lloyds and HSBC say they have already cut risk-weighted assets by changing models.

"European banks account for more than 50% of international bank lending in all major regions of the world bar Asia, where latest data puts it at just under 45%," says a note from Standard Bank analysts Steve Barrow and Jeremy Stevens.

"If they scale back significantly the contagion effects could be substantial. In fact, this could be more damaging to the rest of the world than the more 'traditional' view of contagion in which recession—and falling import demand—are seen as the main threats to non-European countries...[especially as European banks] seem most keen to slim down Dollar lending as they strive to meet new capital requirements."

Chinese consumer price inflation meantime fell to 5.5% last month – down from 6.1% in September – according to official data published Wednesday. Producer price inflation fell even more sharply – down from 6.5% to 5.0%.

"The balance of risk for the PBOC [China's central bank] and State Council is likely shifting to growth and away from inflation," reckons Tim Condon, Singapore-based head of Asian economic research at ING.

"Lower inflationary pressure leaves room for further policy fine tuning," adds Zhang Zhiwei, chief economist China at Nomura in Hong Kong.

"The PBOC has already marginally loosened liquidity by open market operations in October...we expect this type of fine-tuning to continue, but [reserve requirement ratios] and interest rates will be kept unchanged for the rest of 2011."

China's central bank has raised interest rates five times since last October – the last hike coming in July, when the one year deposit rate was raised to 3.5%.

Over in New York, the world's largest gold ETF, the SPDR Gold Trust (ticker GLD), has seen a net inflow over the past week. The gross tonnage of gold bullion held to back GLD shares rose to 1264.1 tonnes yesterday – a 1.7% rise from this time last week.

By Ben Traynor

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 - 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