Gold News

Gold Price Rallies as Euro Falls on Bundesbank "Euro Stimulus" Rumor, But ETF Holdings Hit New 5.5-Year Low

GOLD PRICE losses of 0.5% overnight were reversed in London lunchtime Tuesday after new US data came in weaker than expected, but the Euro fell to new 5-week lows as currency traders bet on "action" from the central bank to avoid deflation.
 
Germany's Bundesbank is now "willing" to back a range of Euro monetary stimulus, the Wall Street Journal quotes anonymous sources, pointing to "negative interest rates" on central-bank deposits and QE-style money-printing to buy "packaged bank loans".
 
After European Central Bank chief Mario Draghi last week signaled action against deflation at the next meeting, inflation forecasts due from ECB staff just before the June 5th meeting "will be central," the Journal adds.
 
With the gold price moving back to $1296 per ounce for Dollar investors, it spiked Tuesday near yesterday's 1-week highs at €946 in the Euro.
 
"European and US CPI estimates for April will be the focus of attention later this week," says Russian bank VTB Capital in a note.
 
US import and export prices fell last month from March, new data showed Tuesday.
 
Retail sales excluding autos were dead-flat, also disappointing analyst forecasts.
 
"Higher US [bond] yields, further [US] economic recovery and potentially looser ECB policy are likely to allow the Dollar to finally appreciate," says French bank BNP Paribas in its latest gold price outlook.
 
"This will reduce the appeal of gold as a store of value and limit official sector diversification [ie, central bank] interest in the metal."
 
Expectations of a June ECB rate cut are one of several "negative factors" for gold prices on a 1-month timeframe, says Swiss investment and London bullion market-maker UBS.
 
"Although there a few signs of demand picking up in the last few days, [it's] not of significant volumes," UBS adds, while there is a further "risk of more ETF outflows" from exchange-traded trust funds – the securitized vehicles which amassed over one year's entire global gold mine supply by end-2012, but then shed nearly one-third of that as money managers sold out in 2013.
 
Gold bullion holdings in the giant SPDR Gold Trust – the world's largest ETF vehicle by value at its market peaks of 2011 and 2012 – yesterday shed another two tonnes, retreating to 780.
 
That's the lowest level since New Year 2009, when gold prices traded from $800 to $900 per ounce.
 
"The gold price range/consolidation of the past month is drawing to a conclusion," reckons technical chart analysis from Bank of America Merrill Lynch.
 
"Downside targets are seen to $1215," the bank's chart analysts say, recommending clients sell short.
 
BoAML also recommends a short position in the Euro vs. the Dollar, advising that last week's top near $1.40 marks "the start of a medium-, potentially, long-term turn in trend."
 
With US stock markets set to open Tuesday at new all-time highs, and Eurozone stock markets gaining 0.7% for the day, India's BSE Sensex jumped to new records of its own above the 24,000 level as exit polls from the last month's national elections continued to say the BJP's Narendra Modi is set to become prime minister.
 
Modi has repeatedly backed the gold industry in India – formerly the world's No.1 consumer nation – against the incumbent Congress administration's anti-gold import rules.

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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