Gold News

Gold Bullion 'Still Valid Investment' But Price Sinks to 4-Month Low as Greece Isolated by Euro 'Partners', Silver Hits New 2015 Low

GOLD BULLION prices sank against a surging US Dollar on Tuesday in London, dropping 1.1% inside two hours as New York's stock indices followed Europe and Asia lower amid fresh wrangling over Greece's debt crisis, plus a fresh sell-off in China's equity markets.
 
With the Euro currency dropping to 5-week lows against the Dollar after better-than-expected US job openings data for May, the price of gold bullion for single currency investors retreated towards last week's finishing level at €1050 per ounce.
 
Gold bullion in Dollar, in contrast, sank through last week's 4-month lows at $1158 to trade down to $1152 – the lowest level since mid-March.
 
Silver meantime sank more than 5% against the Dollar, dropping to new 2015 lows at $14.90 per ounce.
 
"In light of [Monday's crash in commodity prices], the precious metal complex, particularly gold and silver, [had been] star performers," noted one London bullion bank's dealing desk.
 
"Gold’s deterioration," reckons a note from London bullion market maker and benchmark price participant Barclays, "is evidence of the market discounting wider contagion risk from a Greek default, and increasing certainty of a US rate hike this year."
 
New data delayed by Friday's 4th of July holiday yesterday showed large speculative traders in US gold futures and options growing their bearish bets last week to the greatest level since the all-time record of early July 2013, back when the metal's price began steadying after its worst calendar-quarter drop on record.
 
Speculators meantime cut their bullish bets by more than 5% from the previous week's 10-year high, leaving the so-called "net speculative long" position at its weakest since November's new 5-year lows in the gold price.
 
Short betting against silver prices last week hit another new all-time high, the US regulators' data show.
 
Going into Tuesday's meeting of new Greek finance minister Euclid Tsakalotos with his Eurozone peers, the finance minister of 2009 Euro entrant Slovakia called Greek debt reduction a "red line" his country will not accept crossing.
 
Prime minister Alex Stubb of founder member Finland – itself "strangled by the Euro" according to many economists noting that GDP remains 5% below pre-crisis levels – told reporters Greece benefited from debt relief in 2011 and 2012, and the current meeting "[is] not in the business of restructuring debt."
 
ECB board member Ilmars Rimsevics, representing the Euro system's newest central bank member Latvia, said "The Greek nation has been brave and has voted itself out of the Eurozone."
 
A day after the European Central Bank demanded more collateral from Greek banks in return for the Emergency Liquidity Assistance already lent, "Provision of ELA at overly generous conditions could increase the risk of moral hazard," the ECB said in an updated document on its site, spotted by Bloomberg.
 
"The objective of ELA is to support solvent credit institutions facing temporary liquidity problems. It is not a monetary-policy instrument...[and it must not] breach the monetary financing prohibition" which blocks central banks from funding national government deficits under the terms of the Euro treaties.
 
"We have a great friendship with Syriza, but luckily, Spain is not Greece," the leader of Spain's left-wing opposition Podemos party meantime told national radio.
 
Defending his 20% allocation to gold bullion, "We believe that gold continues to be part of a long-term wealth creation and maintenance strategy," Bloomberg quotes Michael Cuggino of San Francisco's $4.6 billion Permanent Portfolio Family of Funds Inc.
 
"The rationale for an allocation to gold remains strong," agrees BlackRock Commodities Income Investment Trust manager Thomas Holl, speaking to the Financial Times' professionals magazine, FT Adviser.
 
"Its role as a hedge against financial market instability, currency weakness and the risk of inflation, continues to be valid."

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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