Gold News

Gold Tests $2000 Again Despite Muted ETF Inflows as DB Default Fears Jump

The GOLD PRICE pierced the $2000 mark for the 5th time this week Friday lunchtime in London despite muted investment inflows to gold-backed ETF products, as Western banking shares slumped yet again, led by Germany's No.1 Deutsche Bank amid the fallout from Switzerland's 'shotgun' sale of Credit Suisse to rival giant UBS.
Giant gold ETF the SPDR product (NYSEArca:GLD) ended Thursday night 0.5% larger from last Friday's finish, marking only its 2nd consecutive weekly inflow and growing just 2.5% so far from early-March's 2-year low.
No.2 gold ETF the iShares product (NYSEArca:IAU) saw a small outflow yesterday, trimming its week-so-far expansion to just 0.2%.
Gold bullion headed today for what would be its 2nd highest Friday finish ever in US Dollar terms above $1980, and held on track for a record weekend Euro price above €1845 per ounce.
The gold price in UK Pounds per ounce meanwhile headed for a new all-time high daily price at £1630 – well above last Friday's record £1614 – after Andrew Bailey, governor of the Bank of England, followed his call for UK workers to fight inflation by not seeking a pay-rise with a call for UK businesses not to raise their prices. a day after raising interest rates to 4.25% as the cost of living rises 10.4% per year.
Chart of USD, GBP and EUR gold prices, Friday fix in London, rebased to 100 = Jan 2003. Source: BullionVault
Silver prices rose further, touching $23.50 for the first time in 7 weeks, but the other industrially-useful 'white' metals of platinum and palladium both continued to hold flat as crude oil slipped towards last week's 15-month lows.
The price of government bonds, in contrast, rose yet again as banking shares pulled global stock markets lower, with troubled US lender First Republic (NYSE:FRC) down almost 90% from this time last month.
Down more than 14% for the day and almost 20% lower from last Friday, shareholders in Deutsche (ETR: DBK) also saw the cost of insuring the giant German bank's debt against default jump to the highest since 2018, when a decade of scandals forced DB to abandon its once-lucrative US investment banking business amid a raft of senior management changes.
"Markets price 31% default probability for DB [subordinated] bonds and 16% for senior DB paper," says finance reporter Holger Zschäpitz at Welt.
The price of 'buffer' capital in Deutsche Bank also fell yet again, driving the yield offered to new buyers of its AT1 bonds up above 24% per annum – twice last week's level – after last weekend's Swiss move entirely wiped out $17bn in Credit Suisse's AT1 debt while giving shareholders 13 Rappen in the Franc, upending the standard write-down of equity before bondholders.
Friday's rise in government bond prices drove the annual yield offered to buyers of 2-year US Treasury bonds down to 6-month lows beneath 3.70% but left the US yield curve inverted – a widely-acknowledged signal of recession ahead – as 10-year rates slipped to 3.35%.
Prices to trade gold in China – the precious metal's No.1 consumer market – had earlier cut their premium over London quotes to $7 per ounce, the lowest incentive in a week for new bullion imports and back in line with the historic average, as the Shanghai Gold Exchange's benchmark contract ended the week at ¥440 per gram, down ¥6 from Monday's new record China gold price.
Over in India in contrast, "Demand has stalled because of the spike in prices," Reuters quotes one Kolkata wholesaler, reporting domestic discounts of $57 per ounce – twice last week's level – amid record Rupee prices for newly landed imports of INR 60,000 per grams.
"Deutsche Bank has fundamentally modernized...and is a very profitable bank," said German Chancellor Olaf Scholz to reporters Friday at the EU leaders summit in Brussels.
"There is no cause for concern," he said, echoed by other attendees including European Central Bank President Christine Lagarde when asked about the 19-nation currency zone's banking sector more broadly.


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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