Gold News

"Massive Growth" in Gold Bullion Demand as Prices Hit New All-Time Highs Amid Greek "Near-Default" Talk, Continued Low Rates

Gold Bullion jumped above $1500 per ounce in London on Wednesday, setting new Dollar and Sterling highs but falling sharply against the Euro as the single currency rose to its highest level since 2009.

World stock markets surged almost 2% on average, as news of stronger-than-expected US corporate earnings came alongside a fresh rumor of Greek-debt "restructuring" from a German official.

"[While] it doesn't have to mean an actual default, I fear that Greece can't get out of this situation without some kind of restructuring," said Chancellor Merkel's economic advisor Lars Feld to Deutschlandfunk radio.

The price of Greek government bonds fell yet again, driving yields up to new post-Euro highs, while Portuguese government bond yields also jumped to fresh post-union records above 9% per year.

The wholesale price of Gold Bullion in Euros slipped, however, trading 1.8% below Monday night's 4-month high.

Italian policy-maker and former Goldman Sachs executive Mario Draghi – already endorsed by the Financial Times and Economist magazine – was meantime tipped in the Wall Street Journal today as the favored candidate of German finance minister Wolfgang Schauble to replace Frenchman Jean-Claude Trichet when he steps down as European Central Bank president in October.

Here in London, minutes from the Bank of England's latest policy vote today showed the committee agreeing that "demand and activity had probably been to the downside" when it voted to hold UK base rates below the pace of inflation for the 17th month running.

For US interest rates, "The market is now pricing in just a...one-third chance that the Fed will begin tightening at the January 2012 meeting," says the FT's Alphaville blog, citing Bloomberg data, "and is estimating less than a 50% probability that tightening will start even at the March 2012 meeting."

"There are not a great deal of reasons to sell Gold at the moment," Reuters quotes Darren Heathcote at Investec Australia.

"Given that few countries in the world appear to be in a sound fiscal state nowadays," says Tetsu Emori at the Astmax Co. fund managers in Tokyo, "the focus is all the more put on safety, as reflected in the strength in gold not only in Dollar but non-Dollar currencies."

Looking ahead to the scheduled end of the Federal Reserve's current $600 billion Treasury-bond purchases in June, "The very fact that net supply of new debt and bank lending has been weak," says Deutsche Bank's Dominic Konstam in a note, "strongly suggests that the impact of QE2 has been a risk-asset price phenomenon and not a loan creation phenomenon.

"In other words, broken bank balance-sheets have simply allowed for the crowding out of Treasuries into limited-risk assets with price gains more exaggerated than they would have been in an economy with a well-functioning banking system."

"Silver Prices remain very strong, but seem to have run ahead of the fundamentals," says bullion bank Scotia Mocatta's latest Metal Matters monthly.

With silver setting its 8th new 31-year high in 13 trading days so far in April, "If gold corrects expect silver to follow," says Scotia.

"Longer-term [Gold] investors generally seem comfortable to hold their existing positions...[yet] the level of interest is low considering how much uncertainty there is in the market and how weak the Dollar has been."

Following last week's news that the University of Texas' endowment managers have switched from a derivatives to physical Allocated Gold position, "One of the most interesting highlights is the massive growth in physical gold bar investment," writes David Wilson at French bank Societe Generale, commenting on the 66% jump in gold-bar sales reported by the GFMS consultancy for full-year 2010 worldwide.

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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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