Gold News

Gold Prices Rise as Eurozone Central Banks Revise Sales Agreement, Speculative Betting Falls

GOLD PRICES rose steadily in Asian and London trade Monday morning, gaining 0.8% as central banks in the Eurozone renewed but amended their ongoing gold sales agreement, first made in 1999.
 
Repeating that gold bullion bars are "an important element in global monetary reserves", the 21 signatory institutions will not put a pre-announced ceiling on joint gold sales after the current 400-tonne-per year deal expires in September.
 
Europe's central banks have sold barely 10% of that limit since the third Central Bank Gold Agreement was signed in 2009.
 
Dollar gold prices rose Monday to $1304 per ounce as world stock markets slipped, and weaker European government bond prices fell sharply.
 
Euro gold prices crept back above €950 per ounce, holding 0.6% below last week's 1-month highs.
 
Commenting on claims that the strong Euro is hurting the currency union's recovery, "It would short-sighted only to take a one-dimensional view of the Euro exchange rate," said Germany's Bundesbank chief Jens Weidmann in a speech today.
 
Analysts should not "leave out the stimulating effects of lower sovereign bond yields," the European Central Bank policymaker said.
 
Looking ahead to June's policy meeting, "The ECB might try to take monetary action to limit Euro strength," says Standard Bank currency strategist Steven Barrow, "but the fundamentals of the Euro still remain pretty strong, and $1.40 for Euro/Dollar still seems likely."
 
"The ECB's loose monetary policy should be bullish for gold," Reuters quotes Macquarie's Matthew Turner in London, "but the downside is that it makes the Euro weaker, lifting the Dollar.
 
"So it might not be seen in the dollar gold price."
 
Shanghai gold prices meantime held above London quotes at the close of Monday's business, extending the last fortnight's return to a Chinese "premium" after hitting the widest discounts since spring 2010 on Bloomberg data.
 
Trading $1.80 per ounce above London gold prices, Shanghai gold held little changed in Yuan terms, as the Chinese currency weakened to a 2-week low on the FX market.
 
"Gold prices have been gravitating on either side of the 200-day Moving Average at $1300 for the past eight weeks," said Friday night's technical note from Scotia Mocatta.
 
"The overall price ranges have been shrinking every week, which has formed an interesting triangle formation. Key levels at the moment are...$1285 and $1307, with a break opening the base or top."
 
Speculative betting on higher gold prices fell last week at the fastest pace in a month, new data showed after Friday's close, with the "net long" position in gold futures and options shrinking 7% to just over 400 tonnes equivalent.
 
Peaking above 1,100 tonnes-worth of contracts as prices neared their $1900 peak in summer 2011, the speculative net long position in Comex gold has averaged 630 tonnes over the last 5 years.
 
As a proportion of all silver futures contracts last week meantime, the net long position of speculative traders rallied slightly from the previous week's 3-month low beneath 7.0%.
 
Since May 2009, speculative net betting on higher prices has accounted for 20% of outstanding Comex silver futures each week.
 
"In the event of a rally," says Japanese trading house Mitsui's Singapore team in a note, "expect silver to outperform gold short term."

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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