Gold News

Gold Hits New Euro Record as Bank Run Hits Greece, Futures Bets Jump; Record Low Rates Make Shorting the Euro "Easy"

Gold Prices ticked back from a 12-week high for Dollar investors early Thursday, recording the best London Gold Fix since Jan.12th as the US currency rose against the Euro and global stock markets fell.

Shares in Athens lost almost 4% as news broke that Greece's 4 biggest banks have asked for €17 billion in emergency credit to weather a run on deposits.

Private savers moved €10bn – some 4.5% of total bank deposits – out of the country in Jan. and Feb. according to the Greek central bank.

"[There's] anxiety among wealthy Greeks about keeping assets here, given the increasing uncertainty," said one private banker to the FT this morning.

Euro investors wanting to Buy Gold today saw the wholesale price set at the London Fix hit a fifth record high on the run.

Set above €862 an ounce (€27737 per kilo), the Gold Price in Euros has now added 4.3% from Thursday last week and more than 11% from the start of 2010.

The Gold Price in Swiss Francs – which were formally backed by Switzerland's huge gold reserves until the start of last decade – broke to new highs above CHF1235 an ounce.

Gold priced in British Pounds came within 0.4% of a new all-time high at £757 an ounce.

"The dollar is not the sole determinant of Gold Prices – it's just a very influential one," says HSBC's chief commodities strategist James Steel.

Noting that global Gold Prices have matched a "dramatic" rise in longer-term bond yields, the run of Euro-price highs "denotes strong underlying strength in the gold market," says Steel, "and it indicates that other factors are very strong."

Wednesday's 1.6% rise in US-Dollar Gold Prices came as open interest in US Gold Futures – the total number of live contracts held by traders – rose yet again, adding 4.5% from Tuesday and swelling by more than 10% from this time last week.

The sharp bounce in leveraged betting on gold comes after the "net long" position held by players outside the gold industry fell for the 3rd consecutive week, notes the latest Precious Metals Weekly from London's VM Group, taking it down to "its lowest level since August 2009."

"The latest numbers show that gold's net non-commercial position is not excessive at 30.9% of open interest," says Walter de Wet at Standard Bank of last week's data.

"This is still below the average level of 35% seen in 2009, and well below the highs of 41.8% in October 2009. Also, compared to other commodities such as crude and even silver, gold still looks well placed to survive any large sell-off or correction. We therefore foresee good physical gold flows."

"Greece continues to look like a slow-motion train wreck," says de Wet's colleague, chief currency strategist Steven Barrow at Standard Bank.

"We'd say that the Euro is still a pretty easy sell right now, down to at least $1.25.

"There's no penal [interest] rates to be paid for shorting the Euro and, in our view, little chance of a dramatic Euro rally in the same way as we might have seen for the likes of the Drachma or Peseta in the past."

It's only 12 years, notes Barrow, since Greece last devalued its currency – an option no longer available now that it's a member of the 16-nation Eurozone.

The gap between Greek and German bond yields today rose to a Euro-record of four percentage points. The 1998 crisis saw the spread almost hit six percentage points – but Greece's short-term interest rates were then "up to 23%."

Today the European Central Bank (ECB) voted to keep its key policy rate at 1.0%.

The Bank of England also stuck with its record-low rate of 0.5%, surprising no one by making no changes to monetary policy four weeks before the UK general election.

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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