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Catching a Falling Financial Knife

Gold and Silver Finally Decouple from Euro, Stocks and other Commodities

Commodities / Gold and Silver 2012 May 31, 2012 - 01:19 PM GMT

By: Adrian_Ash

Commodities

WHOLESALE BULLION gold prices rose Thursday lunchtime in London, extending yesterday's sharp jump and cutting this week's 2.5% drop by more than two thirds even as the Euro currency again slipped through $1.24 for the second day running.

Trading near $1564 per ounce, however, Dollar gold prices headed towards their fourth monthly drop in succession, losing some 5.3% in May.


Silver bullion neared the end of May more than 10% lower from end-April, despite rallying above $28 per ounce Wednesday afternoon in London when the Euro first slipped to those fresh two-year lows.

US crude oil was on track for a monthly drop of 16% says Bloomberg, its worst fall since December 2008.

The MSCI index of global stock markets has shed nearly 9% in May.

"Gold and to a lesser extent silver decoupled from the rest of the [commodities] group on Wednesday and started to head higher," says a US analyst.

"Finally gold is behaving 'normally' and is 'profiting' from the fears surrounding the Euro," agreess Commerzbank analyst Eugen Weinberg, "[resisting] the general downswing experienced by commodities and equities.

"Gold is proving to be good 'risk insurance' [but] we believe there may still be downside risks if the US Dollar continues to remain strong."

Standard Chartered also "see downside risks for the short term but remain long-term bulls," they said in a note.

May has "definitely seen a flight to the Dollar rather than gold," says Chinese brokerage CITIC Futures' chief investment strategist Wang Xiaoli, adding that "the crisis in Europe doesn't look like it will abate soon."

So-called "safe haven" US Treasury bonds rose sharply again on Thursday, driving 10-year yields down to new all-time lows beneath 1.60%, following weaker-than-expected US payroll data from the private ADP group.

Ten-year Spanish bond yields meantime held near 6%, the level which Portuguese yields reached just before its ECB, IMF and European Union bailout.

Speaking to the European Parliament Thursday morning, the 17-nation Eurozone's chief central banker Mario Draghi accused Spain and other member states of trying to deal with their domestic banking crises in "the worst possible way."

Spain last week announced a fresh €19 billion injection of state funds into the part-nationalized Bankia lender.

"There is a first assessment, then a second, a third, a fourth," said Draghi. "Everyone ends up doing the right thing, but at the highest cost."

Across in Ankara, the Turkish Central Bank today said it may "gradually" raise the percentage of required reserves which commercial banks can hold in physical Gold Bullion to 30%.

The news comes only 1 months after the limit was raised to 20%, and only 2 months after Turkish banks were first allowed to hold a portion of their required reserves in gold. (Read about Turkey's new gold policies here...)

The world's biggest trade credit insurer, Euler Hermes, meantime suspended cover for goods being shipped to Greece, saying that until there's "clarity" after 17 June's Greek election, it cannot be sure debts will be paid in the event of Athens quitting the Euro.

Over in Hong Kong today, London-based luxury jeweler Graff abandoned its $1 billion stock-market IPO scheduled for tomorrow, blaming "consistently declining stock markets."

India's Rajesh Exports – which forecast in Sept. 2009 that rising Gold Prices could dent Indian demand, only to see the world's #1 buyer grow its private consumption for the next two years running – today warned that Indian gold demand could fall hard in 2012 due to the weak Rupee.

In Dollar terms, "Gold Prices remain within a sideways consolidation," says Mumbai-based RiddiSiddhi Bullions, pointing to support at $1526 and resistance at $1600.

"We are neutral gold until it makes a larger directional move outside of those levels. The trend remains bearish."

By Adrian Ash
BullionVault.com

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

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 www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

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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Catching a Falling Financial Knife