New Greek Crisis is Biggest Risk for Gold

By: Ben_Traynor

U.S. DOLLAR gold prices held steady just off $1760 an ounce during Wednesday morning trading in London, after a rally in Tuesday's US session saw gold climb 1.3%.

Silver prices softened slightly but held above $34 per ounce – having through that level on Tuesday following the Greek bailout announcement. Stocks and commodities edged lower this morning, while government bond prices gained.

Gold prices "[ran] into sell stops at the $1760 level," says one gold dealer here in London.
"We don't see a substantial amount of enquiries in the physical market," adds Dick Poon, Hong Kong-based precious metals manager at refiner Heraeus.

However, "a break of $1763 will bring in fresh buying," reckons the latest technical analysis from bullion bank Scotia Mocatta, "looking for a test of November high $1803."

Greece has been given nine days to meet a list of conditions before it can receive its €130 billion agreed by Eurozone finance ministers yesterday. The list includes sacking underperforming tax collectors and readying state-owned companies for privatization in the summer, the Financial Times reports.

"The [Greek] deal may have removed near-term uncertainty," adds Helen Roberts, head of government bonds at F&C Asset Management in London, "[but] it's a hard environment to implement austerity measures. It's a worry that the Greek government might not be able to do much even though they are fully committed to the agreement."

"The greatest risk to the downside that we see for gold is a fresh Greek crisis," warns HSBC precious metals analyst James Steel.

Here in London, two members of the Bank of England's Monetary Policy Committee voted against its decision to expand its quantitative easing program by £50 billion earlier this month, while the remaining seven voted in favor, minutes published Wednesday show.

David Miles and Adam Posen both voted in favor of a larger increase of £75 billion, which would have taken the total size of asset purchases to £350 billion.

"This leaves the door open for more QE," reckons Victoria Cadman, London-based economist at Investec. 

"We're looking for another £50 billion in May, and after that we don't see any more as the economy picks up in the second half [of 2012]."

In a speech in Scotland yesterday, Bank of England deputy governor Charlie Bean acknowledged that "the current extended period of rock-bottom interest rates has impacted heavily on those holding most of their savings in deposit or short-term savings accounts, who have seen negative real returns."

Bean added, however, that while the" side effects" of QE "may be unpalatable...treatment is invariably better than the alternative".

Sterling gold prices hit an eleven-week high at £1119 per ounce Wednesday morning, as the Pound fell on the currency markets.

The gold price in Yen meantime moved to within 5% of last September's all-time high today, touching ¥140,971 per ounce, as the Dollar hit its highest level against the Japanese currency since last July.

Like the Bank of England, the Bank of Japan also expanded its quantitative easing program earlier this month.

Growth in Germany's manufacturing sector has slowed this month, according to provisional purchasing managers index data published Wednesday. German manufacturing PMI fell to 50.1 – down from 51.0 last month (a figure above 50 indicates expansion).

Across the Eurozone as a whole, provisional manufacturing PMI rose from 48.8 in January to 49.0.
Over in China – the world's largest gold bullion consumer in the fourth quarter of last year – flash PMI data compiled by HSBC.

Investment banking giant Goldman Sachs repeated its bullish view on gold prices Wednesday.

"We expect US real interest rates to remain lower for longer given our US economics team's expectation for US economic growth to remain slow through 2012," said a note from the bank.

"Consequently, we expect gold prices to continue to rise through 2012, reaching $1,940 an ounce in 12 months, and we continue to recommend a long gold position."

By Ben Traynor
BullionVault.com

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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 2012

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