Gold News

Gold Investing 'to Benefit' as ECB's Draghi 'Burns German Savings', Beijing Defies Trump's FX Jibe

GOLD INVESTING prices fell $20 from a new 13-month high Friday morning in London, cutting the 1.9% weekly gain touched overnight in China to almost zero as world stock markets rose sharply following yesterday's news of fresh monetary stimulus for the 19-nation Eurozone – the world's largest single currency bloc by economic output.
 
European stock markets reversed Thursday's sharp investing losses, taking Frankfurt's Dax index back to last week's closing level. 
 
Silver also held unchanged for the week, trading at $15.52 per ounce, while US crude oil gained over 7% from last Friday to trade above $38 per barrel – higher by nearly one-half from February's new 12-year lows.
 
Yields paid by investing in weaker Eurozone government debt edged lower, however, as bond prices rose.
 
That cut the cost of borrowing 10-year money by more than 0.2 percentage points for Spain and Italy from a month ago, and by almost 1.0 and 2.2 points respectively for Portugal and Greece.
 
The Euro currency meantime edged back from its sudden – and unexpected – surge on European Central Bank president Mario Draghi's comment that deposit rates for commercial banks may not be cut further from Thursday's new record-low of minus 0.4%.
 
Overnight in Asia – and a day after US presidential hopeful Donald Trump called Beijing "the worst" offender in competitive currency devaluation – the People's Bank of China raised the Yuan's official exchange-rate value against the Dollar, taking it to 1-month highs at stronger than 6.50.
 
"You can only assume [the PBoC is] trying to wrong-foot speculators" betting the Chinese currency will fall as its economy slows, according to senior strategist Sean Callow at Australia-based Westpac Bank.
 
Shanghai gold trading surged at Friday's open, reaching 3 times the last 18 months' daily average, as the metal rose against the stronger Yuan, adding 1.5% for the highest Friday finish in Chinese currency terms since March 2014.
 
Having traded almost 2% down for the week as the European Central Bank announced its latest decision on negative rates and QE money creation Thursday, gold priced in Dollars shot higher, touching its highest level since late January 2015 at $1282 per ounce.
 
Gold investing in Euro terms, in contrast, slipped €13 per ounce from last Friday's 151-week closing high at the London benchmarking auction, trading at €1144 by lunchtime today.
 
Chart of gold price in Euros, Friday PM London benchmark
 
"Draghi's dangerous gamble with German savers' money" is the headline on leading financial newspaper Handelsblatt's report today.
 
Showing a mocked-up photo of the ECB president lighting a cigar with a burning €100 note, Handelsblatt calls Thursday's new stimulus "the greatest redistribution of wealth in Europe since World War II."
 
Rather than boosting bank lending as hoped, the ECB's negative rate policy has so far failed to shrink cash holdings amongst the Eurozone's credit institutions.
 
Excess reserves – held on deposit at the ECB over and above the banking sector's required reserves – have risen 5-fold since the ECB first imposed negative rates in June 2014, reaching a new end-month record above €443 billion in January.
 
"Our economists do not believe that the ECB's more expansionary monetary policy will help the real economy in any significant way," says German financial services group Commerzbank's commodity team today, saying that the ECB therefore looks likely to loosen its monetary policy again later in 2016.
 
Whether the ECB grows the pace of its QE bond purchases – now at €80bn per month – or extends the program beyond its currenct end date of March 2017, "This should benefit gold," Commerzbank concludes.

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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