Gold News

Gold sinks as stocks, bonds, oil and base metals continue to fall

Gold sank as the US session began on Friday and failed to rise above $645 as the weekend drew near after wiping out the early recovery to $668 in Europe.

Against Sterling gold dropped below £340 for the first time in 10 days. Eurozone investors were able to buy gold below €500 for the first time since late Jan.

"Gold is not glittering any longer as a safe haven," wrote analysts at Dresdner Kleinwort in a note.

Referring to the broad sell-off in all asset classes – and the failure of bonds to rise in response – they added that "commodities in general are perceived as risky assets.

"This asset class is just sold to reduce portfolio risk and to take profits in order to compensate losses suffered in other assets like equities...

"Thus, as long as unwinding of Yen carry trades continues and equity prices head south, gold and silver remain in the wake of bear markets."

(Yen carry trades? To get the full story on what's been driving global asset markets click here now...)

News that UN officials are meeting to discuss sanctions against Iran over its nuclear enrichment program failed to spook energy traders or "hard money" investors.

Agence France-Presse reported that the talks had already ruled out any possible military action.

Outside the gold market, copper and oil prices also took a beating. Crude in New York dipped below $62 per barrel earlier today.

Copper dropped 0.7% at the London Metal Exchange, heading for its first weekly loss in four. UBS along with most other professional commentators blamed unwinding of the Yen carry trade, as the Japanese currency enjoyed its fastest weekly gain versus the Dollar in 14 months.

"It's a worry on liquidity after unwinding of carry trades," said Robin Bhar at the investment bank. "Once this concern is abated, prices will rebound."

For now, however, the "safe haven" exit of choice seems to be cash. US Treasury bond prices have risen, but only enough to push 10-year yields down to levels seen in Dec.

Corporate bonds, meantime, have joined the decline in global equities and commodity prices.

Emerging market bonds, bid up to record highs in the last few weeks, have turned sharply south. And Bloomberg reports that bonds issued by Goldman Sachs, Merrill Lynch and Morgan Stanley are now trading next to "junk bonds" according to the cost of default insurance.

"Prices for credit-default swaps linked to the bonds of the New York investment banks this week traded at levels that equate to debt ratings of Baa2," says the newswire. "That's five levels below the actual Aa3 rating on their senior unsecured notes and two steps above non-investment grade, or junk."

Just what risks lie ahead for corporate bond traders? Full a report on what the search for yield has done to European fund managers, click here now...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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