Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Falls Back as it "Tracks U.S. Dollar", Italy Comes "Under Scrutiny" after Spanish Bailout

Commodities / Gold and Silver 2012 Jun 11, 2012 - 08:16 AM GMT

By: Ben_Traynor

Commodities

Best Financial Markets Analysis ArticleSPOT MARKET gold prices dropped back below $1600 an ounce Monday morning in London, having briefly risen above that level in Asian trading, as stocks and the Euro also began the week strongly and US Treasuries fell following news that Spain is to receive a bailout.

Silver prices also jumped as Asian markets opened, before they too traded lower, falling to around $28.70 per ounce ahead of the start of US trading.


Euro gold prices by contrast rallied shortly before US open, climbing to €40,880 per kilo (€1271 per ounce) as the Euro gave back most of its early gains against the Dollar.

"Gold seems to be primarily tracking one trend, namely the trend in the US Dollar," says a note from Citi.

"If an event in Europe causes the US Dollar to weaken, gold is likely to rise. If it causes the US Dollar to strengthen, gold will likely fall."

The Eurogroup of single currency finance ministers confirmed Saturday that Spain will ask to borrow up to €100 billion to fund restructuring of its banking sector, ahead of forthcoming stress tests of Spanish financial institutions.

In return, a Eurogroup statement said, Spain should focus on "specific reforms targeting the financial sector". There was, however, no mention of fiscal reforms as a condition of lending, in contrast with the bailouts of Greece, Ireland and Portugal.

"The Eurogroup notes that Spain has already implemented significant fiscal and labor market reforms," the statement said.

"This is pre-emptive action," said Olli Rehn, European commissioner for economic and monetary affairs, speaking on Sunday.

"This is a very clear signal to the markets, to the public, that the Eurozone is ready to take determined action."

Yields on 10-Year Spanish government bonds however remained above 6% Monday morning, rising above 6.2% after an initial drop.

"The burden of recapitalizing insolvent banks or loss-making acquisitions of solvent banks will fall on Spanish citizens," says Karl Whelan, economist at University College Dublin.

"This weekend's announcement may well end up shutting Spain out of the sovereign bond market."

Spanish banks have suffered as a result of loans to Spain's property market going bad, and may need to put aside up to €155 billion to cover losses, according to an estimate from analysts at Credit Suisse, who add that a further €94 billion in losses may stem from non-property lending.

"We also know that the Spanish regions are going to need a lot more funding than has been assumed," adds Helen Haworth, London-based head of European interest rate strategy at Credit Suisse.

"There is still no buyer of Spanish debt beyond the domestic investor base, which is basically the Spanish banks."

"The key is to look at the reaction of investors and see if capital flight stops," adds Jose Carlos Diez, economist at research firm Intermoney in Madrid.

"If the process doesn't stop, there will be more funding problems and what we will see is a bailout that is starting small become a big one."

Spain's central bank revealed last month that €97 billion left the country in the first three months of the year.

Elsewhere in Europe, yields on 10-Year Italian government bonds breached 6% Monday morning, higher than where they ended last week.

"The scrutiny of Italy is high and certainly will not dissipate after the deal with Spain," says Nicola Marinelli, portfolio manager at Glendevon King Asset Management in London.

"This bailout does not mean that Italy will be under attack, but it means that investors will pay attention to every bit of information before deciding to buy or to sell Italian bonds."

Both Spain and Italy are guarantors for the lending capacity of the European Financial Stability Facility and European Stability Mechanism, the bailout funds that will fund the Spanish bank rescue package.

Ahead of this weekend's elections, two of Greece's left-of-center parties, Pasok and Democratic Left, have proposed plans that would form the basis of a unity government, reportedly borrowing heavily from the policies of the Coalition of the Radical Left (Syriza). 

Syriza, which has expressed opposition to Greece's bailout deal, and the pro-bailout New Democracy party are the two parties currently leading in the polls.

Over in China, gold investment demand could rise by more than 10% this year, according to a senior figure at the Industrial and Commercial Bank of China.

"Investors here want to hold part of their assets in gold to hedge for the risks, especially now that the financial crisis has evolved into a sovereign crisis," says Zheng Zhiguang, general manager at ICBC's precious metals department.

"It's necessary for individual, institutional or even government investors to hold gold when the value of money is decreasing at a time of possible quantitative easing or excessive money-printing practices."

ICBC announced last month that it aims to become Asia's first market maker in London's gold market.

Chinese consumer price inflation meantime eased to 3.0% last month – down from 3.4% a month earlier, according to official data published Saturday. Last year, China's official CPI inflation hit a 2011 high of 6.5% in July.

In New York meantime, the difference between bullish and bearish gold futures and options contracts held by traders on the Comex exchange – the so-called speculative net long – rose 2.8% in the week ended last Tuesday, figures published late Friday by the Commodity Futures Trading Commission show.

The spec net long rose above a notional equivalent of 400 tonnes of gold bullion for the first time since the start of May, after gold prices rallied above $1600 an ounce the previous Friday.

"The sharp increase was largely the result of speculative longs being added, with a slight decrease in speculative shorts also contributing to the overall improvement," says Standard Bank commodity strategist Marc Ground.

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 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.


© 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