Gold News

Gold & Dollar Slip with Treasury Bonds as Stocks Jump on G20's "Bad Bank" Promises

Spot Gold prices slipped 1% early Monday in London, falling alongside the US Dollar as world stock markets jumped – led by banking shares – after the weekend's G20 meeting of leading policy-makers agreed a rough plan for buying up "impaired assets" both from their own local banking groups as well as from international finance houses.

By lunchtime in London, the FTSE100 index stood back at this month's opening level, more than 9% above the six-year low hit on March 5th.

The AM Gold Fix, meantime, priced gold at $923 an ounce, almost 3% lower for March so far.

Eurozone investors now Ready to Buy  Gold saw the price slip once again, drifting 6% below the level of two weeks ago to €708 an ounce.

The single currency meantime broke above $1.30 for the first time this month.

"Sentiment towards gold is much more positive than a week ago," writes Walter de Wet in his precious metals note for Standard Bank. "Gold has been benefiting from reduced scrap inflows and increased ETF holdings."

Short-term, "We believe that ETF buying momentum isn't enough for gold to break above $950," de Wet goes on, but action in the derivatives market says otherwise.

"Call options [to buy] on the April Gold Futures contract, with a strike at $950, have risen quite sharply over the past two days, while put option volumes with a strike of $900 have declined substantially."

Latest data from US regulator the Commodity Futures Trading Commission (CFTC) also point to industry insiders growing their bullish position to a four-month high last week.

As a proportion of all Comex Gold Futures and options held by the so-called "smart money" of refineries, mints and bullion wholesalers, bets on a rising Gold Price rose to 32%.

Hedge funds and other speculators cut their bullish ratio to 87%, meantime, the lowest proportion since Gold Prices began recording higher highs and higher lows for the first time in nine months in mid-Dec. 2008.

"Gold's path from here is a little unclear after violent movements around $930 on Friday left us with a $20 range," says London gold-dealer Mitsui in its note to clients today.

"We are gravitating back to the middle of that range today as the market awaits some external direction."

On the data front this morning, UK house-price deflation hit 9.0% year-on-year on the latest Rightmove index of asking prices.

Tokyo apartment sales sank once again in Feb., said the Japan Real Estate Institute, while New York State's manufacturing activity showed a fresh record low according to new US data.

Consumer prices in the 16-nation Eurozone meantime rose at a 4.9% annualized rate between Jan. and Feb.

Current Eurozone interest rates stand at 1.5%.

Now holding interest rates below 0.1% and 0.25% respectively, both the Bank of Japan and US Federal Reserve will announce their policies for the coming month on Wednesday.

"We'll see the recession coming to an end probably this year," claimed US Fed chairman Ben Bernanke on CBS's 60 Minutes yesterday. "We'll see recovery beginning next year."

Setting out a wish-list for "bad bank" best practice, the G20 group of nations – which represents some 90% of the world economy, and with two-thirds of its population – agreed this weekend to buy toxic assets "at a fair price...with appropriate risk sharing, to limit the cost to the government as well as prevent moral hazard."

But while "government support should be temporary and should include well-defined exit strategies," the group of 19 leading economies – plus the current European Union president, the Czech Republic – also vowed at its meeting in Horsham, England that "G20 central banks will maintain expansionary policies as long as needed, using the full range of monetary policy instruments, including unconventional policy instruments."

Last week the Bank of England began "quantitative easing", pumping a total of £75 billion into the financial sector in a bid to revive inflation in asset and consumer prices.

Set for $3 trillion of fresh issuance this year, government bond prices fell hard early Monday – driving the yield offered by 30-year US Treasuries up 13 basis points to 3.81% – while the price of oil sank 3.5%, dropping to $44 per barrel.

Also meeting this weekend, the Opec oil cartel chose not to cut output quotas in a bid to support energy prices, disappointing bulls who bought late last week on expectations of tight supply.

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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