Gold News

Gold Sits Tight on Second Monthly Drop as Greek Bail-Out Denied, Euro Falls; Asian Traders Buy Gold "Bargain"

The Gold Price held in a tight range early Friday in London, trading 0.9% above yesterday's 3-month low of $1075 an ounce as European stock-markets ticked higher from this week's 3% drop.

Major-economy bonds were little changed after US Federal Reserve chairman Ben Bernanke was confirmed for a second term in office by a wide majority in the Senate.

Crude oil struggled below $74 per barrel as Asian equities closed the day well over 3% lower for both the week and the month.

Gold neared the weekend 0.5% down from the end of December, lower for the second month running.

The US-Dollar Gold Price has not fallen for more than two consecutive months since the start of 2001.

"Good buying helped the metal make back ground" last night in New York, reports Scotia Mocatta, the bullion bank.

This morning's tight range for Gold Prices around $1083 "attracted physical buyers from Asia, particularly China," says Koichiro Kamei, head of research at Market Strategy Institute in Tokyo.

Singapore dealers hiked the premium on Gold Bars to $1.10 per ounce above London prices on Friday, says Reuters – the highest level since early Dec. and rising from 70¢ per ounce in mid-Jan.

"The gold market is seen as the easiest in which to hunt for bargains," reckons Kamei, "as there's a perception that [monetary] tightening measures in China are primarily aimed at speculative buying in the real estate sector."

China became the world's No.1 source of private gold demand in 2009, overtaking India as Chinese households spent more than 2.0% of their annual savings on physical metal.

New credit growth surged above 32% per year

"We continue to see very good physical demand out of Asia ahead of the Chinese New Year in two weeks' time," agrees Walter de Wet at Standard Bank,

"However, this physical demand may slow substantially within the next week or two."

What's more, says de Wet, "Precious metals are succumbing to Dollar strength, and the source of the Dollar's strength remains the problems in the Eurozone."

"Greece will not default. In the Euro area, default does not exist. There is no bailout problem," said Europe's monetary affairs commissioner Joaquín Almunia to Bloomberg this morning.

But while "Greece is only 3% of European GDP, Iberia's weighting is almost 20%," notes a forex report from BNP Paribas – and both Spain and Portugal are similarly faced with structurally weak, debt-laden economies.

"Europe's periphery will have to reduce its competitive gap to keep [monetary union] functioning," says the French bank. "The related deflationary shock will keep the ECB on the sideline for longer than currently priced into interest rate and FX forwards.

"Hence, we remain outright EUR bearish across the board."

The Euro dropped through $1.40 for the first time since July late Thursday. For gold and silver investors, reckons one London metals dealer in a note today, the single currency "will likely have to climb back above that level to bring about a rally in the precious metals."

Priced in Euros, gold last night dipped to a one-week low of €770 an ounce, rising this morning to stand higher for 2009 to date.

The one-month rolling correlation between daily changes in the Dollar Gold Price and the Euro/Dollar exchange rate has averaged a strong 0.69 in January, down from Dec.'s 0.77 but well above the 10-year average of 0.51.

If gold and the Euro always moved together in lockstep, that correlation would stand at 1.0.

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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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