Gold Shows "Major Confidence as Store of Value" as "Vulnerable" Governments Raise New Debt
Gold bounced above yesterday's low of $1133 an ounce for US investors early in London trade on Thursday, rising back to $1140 by lunchtime as the Dollar eased back on the forex market and European shares held flat.
UK and Eurozone interest rates were left unchanged by this month's central-bank decisions in London and Frankfurt.
Shanghai equities closed the day 2.4% lower as rumors said the Chinese government will punish banks who lend for stock-market speculation.
"Unlike the start of the week, we're now seeing a greater amount of scrap and physical [Gold] selling," reports Standard Bank's commodity note today.
"Long liquidation and physical selling in gold and silver was evident" in Asian trade, agrees a Hong Kong dealer – "a disappointing performance after [Wednesday's] rally in New York."
Euro and British-Pound Gold Prices were also little changed early Thursday, holding just south of this week's new all-time record highs.
Commodity prices ticked lower as the New York opening approached, holding crude oil futures just above $80 a barrel.
On the debt markets, UK government gilts rose, while German Bunds ticked lower, pushing the yield offered by 10-year notes up to 3.14%.
Ten-year US Treasuries were unchanged, offering buyers 3.62% per year.
"In the US, Friday's payrolls data could feel the brunt of this winter's storms," writes Steven Barrow, chief currency strategist at Standard Bank in London, noting that analysts now forecast the loss of 60,000 jobs in Feb.
"[But] the real risks of a genuine double-dip recession are more acute in the Eurozone. We would not be surprised to find that when 'global cooling' disappears, there will be an economic spring in the US – and UK."
February's cold snap was blamed again today for the drop in UK house prices, the first month-on-month drop in 7 according to the Halifax lender.
Sterling meantime traded at $1.50 on Thursday, unmoved by the Bank of England's decision to leave UK interest rates at 0.5% while holding its £200 billion ($300bn) portfolio of government bonds unchanged.
Bought over the last 12 months with newly-created money, the "asset purchase" program has more than matched the UK government's budget deficit for the year.
Greece meantime launched a €5 billion bond issue today, offering a yield fully three percentage points above German bunds.
Some €4.5bn in new government bonds was also auctioned by Spain, which – on top of current funding needs – must refinance over 70% of its outstanding debt this year according to the FT's Alpha blog.
Research from Credit Suisse says Greece, Ireland, Spain and the UK are now "most vulnerable to funding problems" out of the world's developed economies.
"We remain bullish on the longer-term outlook for commodities and the shares of the commodity-oriented companies," said Donald Coxe, strategy advisor at BMO Capital Markets to the group's annual Global Metals & Mining Conference in Hollywood, Florida yesterday.
"But the fragile financial state of many major governments and banks means that we must consider the implications for investment assets at a time when investors are beginning to look forward with trepidation to the time when the flows of what we call 'financial heroin' will slow down before drying up."
Coxe noted that the 2009 peak in US-Dollar Gold Prices came even as scrap-gold supplies surged and physical demand from India and the rich West collapsed.
"That the gold price can survive during a period of such key fundamental negatives – and in fact increase despite them," writes Lawrence Williams at MineWeb in Jo'burg – "suggests a major underlying confidence in gold as a store of value, and this should continue as long as economic turmoil persists, which may be for some time yet."
Japan's latest government budget today raised the ceiling on how much money can be borrowed to intervene in the currency markets to ¥145 trillion ($1.6trn), but "Japan has not intervened in forex markets since [selling Yen to strengthen the Dollar] in spring 2005," notes BNP Paribas.
"They may just be trying to spread the message that...they could intervene" to depress the Yen from near 15-year highs, said one Tokyo trader to Reuters.
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