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Gold Prices Hit 2-Week Low as Deflation Hits Germany, Bond Yields Sink, Greece Faces "No Win" on Debt Relief

GOLD PRICES fell near 2-week lows for US and UK investors on Thursday and slid almost 2% against the Euro as Western stock markets recovered earlier losses following news of deflation in German consumer prices.
Germany's consumer price index has fallen 0.3% from January last year, the Statistisches Bundesamt in Wiesbaden said, the heaviest reading since the two-decade record of 2009.
UK inflation will also turn "slightly negative" said Bank of England governor Mark Carney in a speech overnight.
UK government debt yields fell to new all-time lows on Thursday, dipping below 1.4% per year as bond prices rose, while neighboring Ireland raised 6-month loans from the bond market at 0% rates.
"Falling government bond yields were supporting gold because the opportunity costs decreased," says precious-metals analyst Peter Fertig of QCR in Hainburg, Germany, writing in the new 2015 forecast survey from trade body the London Bullion Market Association.
Fertig was joint runner-up in the 2014 competition for gold price forecasts.
"However, once the ECB has implemented QE, profit-taking will probably set in," Fertig now says, forecasting 4% lower gold prices on average in 2015 at $1216 per ounce.
Greek bond yields also fell sharply on Thursday, with debt prices rallying as shares in the country's major banks bounced from yesterday's plunge of up to 30%.
That knocked almost 2 percentage points off Athens' 10-year yields, taking them back down to 8.2% – the level before last Sunday's election victory for Syriza, which wants to write off some of Greece's €300 billion loans from the "troika" of Eurozone partner states, the European Central Bank, and the International Monetary Fund.
"Haircutting IMF loans would inflict losses on many countries far poorer than Greece," writes Reuters BreakingViews columnist Hugo Dixon in a letter to the Financial Times. "If the ECB accepted a haircut on its bonds, it would probably breach EU law."
But "haircutting the Eurozone loans won't provide much debt relief in the short term," says Dixon, noting that those loans to Greece don't need any repayment until 2022 and are charged at just 1% annual interest anyway.
"If Greece's creditors capitulate," says ex-UBS and now independent economist George Magnus in the UK's Prospect magazine, "the floodgates will open for similar treatment elsewhere, causing huge anguish and discomfort in northern Europe.
"[But] if Greece backs down in the face of stern creditor resistance, the feeling of mistrust between north and south will become more corrosive and politically explosive."
"Increasing geopolitical tensions, subdued growth, uncertainties in the Eurozone and possible greater stimulus will prevail in 2015," says 2014 LBMA gold price forecast winner Frederic Panizzutti, head of Swiss refiner MKS Pamp's Dubai operations.
Also writing in the new 2015 survey, and a four-times winner across gold, silver, platinum and palladium forecasts, Panizutti now predicts a 2.1% rise in gold's Dollar average to $1292 this year.

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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