Gold News

Gold "Well Positioned" as Stocks Plunge Again on New Eurozone Risk; Investors Lack "Safe Big-Cap Currencies" Says Credit Suisse

Gold rose sharply against all major currencies early Tuesday, hitting two-week highs against the Dollar above $1224 an ounce as world stock markets slumped almost 2%.

The Euro dropped nearly 2¢, hitting a new four-year low on the currency markets, after the European Central Bank warned that Eurozone banks face €195 billion in bad debts.

The Gold Price in Euros rose within 0.4% of mid-May's all-time record highs, trading back above €32000 per kilo.

"Gold's uptrend still look intact despite being over-bought short-term," reckons one Hong Kong dealer in a note.

"The fear factor is still in the marketplace...which makes Gold Investment a reasonable alternative to equities," says a Swiss commodity analyst, speaking to Bloomberg.

"Gold remains well positioned to benefit from risk aversion," agrees Walter de Wet at South Africa's Standard Bank.

"Speculative length [in Gold Futures] remains at acceptable levels despite gold's rally of the past two weeks. As expected, platinum has seen a very large liquidation of non-commercial long positions."

New data, released after Friday's close, showed speculative traders in US Gold Futures and options reducing their bullish exposure in the week-ending last Tuesday.

The "net long" position of bullish minus bearish contracts held by non-gold-industry players shrank 9% to a four-week low equivalent to 921 tonnes of gold.

As London's precious metals market re-opened after the Whitsun Bank Holiday on Tuesday, platinum and palladium prices fell a further 0.7%, extending May's 10.5% drop.

Crude oil fell hard, down to $72 per barrel as base metals also dropped.

"Safe haven" government bond prices rose, in contrast, pushing yields back down towards last week's multi-month lows.

The British Pound also leapt to near a 3-week high, after the Prudential insurance group's bid for AIG's Asian unit was rebuffed, delaying if not killing the need for a $30 billion Sterling exchange.

Gold priced in Sterling reversed an earlier gain to trade unchanged from last week's record-high monthly finish of £840 an ounce.

"We on [Credit Suisse's] global strategy team remain overweight of gold," says a new report from Andrew Garthwaite's team in London, "and see...that the Gold Price could rise another 10% to 20%."

Supporting the current bull-run in Gold Prices, Credit Suisse's equity strategy team believe, are low real rates of interest; an "80% chance" that quantitative easing or the threat of a sovereign government default will continue; low gold allocations both at Asian central banks and global investment funds; the lack of "bubble behavior" in the Gold Price; sharply higher Gold Mining costs between now and 2015; plus the "shortage of a reserve currency" for investors to hold worldwide.

"There are no safe big-cap currencies," says the Credit Suisse report, recommending investors buy what it calls "cheap" Gold Mining shares such as Newmont.

"German investors have not been put off the slightest by the high Gold Prices," says Wolfgang Wrzesniok-Rossbach at refinery group Heraeus in Hanau.

"Increased [investment] demand was met by limited supply, so much so that despite increased production of bars (and certainly Gold Coins too) in the past two weeks, the waiting period for delivery went up considerably."

Meantime in the government debt market today – where the European Central Bank said yesterday that it's raised its purchases of Eurozone bonds – "By buying up Greek debt, the ECB keeps the prices of the bonds artificially high," notes Germany's Der Spiegel magazine online.

"French banks, in particular, benefit from this policy," the magazine says, because French institutions now hold €80 billion in Greek government bonds. German banks, in contrast, have agreed with the Berlin finance minister not to sell their Greek bonds at all until May 2013.

"Thus, in a roundabout way, the [German] Bundesbank, by spending €7 billion to purchase the Greek securities, has already made a substantial contribution to bailing out banks in neighboring France," says Der Spiegel.

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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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