Gold News

Gold Investment Demand Makes 'Significant' Jump as Syriza Forms Greek Government, 'Persistent Uncertainty' Ahead for Euro

GOLD INVESTMENT prices rallied in London Monday lunchtime, steadying from a steep drop as world stock markets held flat overall and government bond prices slipped following the victory of anti-austerity party Syriza in Greece's snap general election.
 
The Euro currency recovered almost 2 cents from new 11-year lows against the Dollar on the FX market.
 
Earlier hitting new 21-month highs at the start of the week's trading in Asia, wholesale prices for gold investment bars retreated 2.4% versus the Euro.
 
"Over the previous week we witnessed significant physical buying interest by German retail investors," says German gold refining group Heraeus in a note.
 
"Investors in Germany, France and Italy [had] been buying gold ahead of the European Central Bank meeting," says the Wall Street Journal, pointing to the ECB's launch of €1.2 trillion in QE bond purchases on Thursday.
 
"Physically backed gold ETPs," says Barclays Capital, looking at exchange-traded investment trusts giving exposure to gold prices, "saw their largest daily inflow since January 2013 on Friday...[putting] inflows on track to deliver the largest monthly inflow since September 2012" by weight.
 
"This corresponds," says the dealing desk at Standard Bank in London, "to the dramatic increase in net speculative length" in US derivatives contracts, "back to the highs seen in October 2012 [before the] massive liquidation of 2013."
 
Positioning data for US futures and options released Friday show the notional value of speculators' bullish minus bearish bets on gold leaping to 586 tonnes last week, up by 27% from the week before to the largest level since the US Federal Reserve began its last round of quantitative easing more than two years ago.
 
Overall, the total number of Comex gold futures and options contracts now open jumped 15.3% – the fastest growth since April 2013 marked the start of gold's worst price drop in three decades – in the week-ending last Tuesday, which saw huge volatility in world markets after the Swiss National Bank suddenly abandoned its 3-year old "peg" for the Franc to the Euro.
 
"Gold is increasingly being used as a Euro hedge in the short term," note analysts at US investment bank Citi.
 
"Persistent uncertainty out of the Eurozone," adds Swiss bank and London bullion market maker UBS, "is likely going to keep any journey south [in gold prices] relatively contained.
 
"While long liquidation is a risk, the potential for shorts to aggressively build positions [betting against gold using futures and options] is limited for now."
 
Today in China – one of the world's top two gold-consumer nations with India – the Yuan price of gold investment bars ended the day unchanged from Friday.
 
But with the US Dollar rising to a new 8-month high against the Chinese currency, Shanghai premiums for gold bars – over and above the global benchmark of delivery in London – fell to just a few cents per ounce, potentially deterring importers ahead of next month's key Lunar New Year celebrations.

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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