Gold News

Gold Slips from Record-High Weekly Finish as Europe "Defends Its Money" with €750bn "Shock & Awe"

Gold fell hard from last week's record-high finish on Monday morning, losing 2% vs. the Dollar as commodities and global equities jumped on news of the European Union's new €750 billion "Stabilization Mechanism" plan.

The Euro leapt 2.6% during Asian trade, rising back above $1.30 – a level first broken in late 2004 – for the first time in five sessions.

Britain's Pound recovered almost half the last fortnight's drop vs. the Dollar, trading above $1.4950.

The French stock market leapt more than 8% by lunchtime in Paris. Frankfurt's Dax and London's FTSE100 both rose almost 5%.

"The impetus for last week's move [in Gold] has calmed for the moment," says metals-conglomerate Mitsui's London dealing team in a note.

"Bigger picture, we could be forming another top around last year's December high," writes Phil Smith for Reuters India Technical, looking at the US Dollar price of Gold.

"This could be a large double top and...[US futures' trading] volume has been tailing off, which is consistent with such a pattern."

Priced at €750 billion altogether – and far outweighing analyst expectations – the European Stabilization Mechanism is equivalent to "Shock & Awe, Part II and in 3-D" according to one shocked economist in London.

The EU Commission – funded by taxpayers from the 27 member states – will give €60 billion, while the 16 governments of the Euro currency zone will pledge €440bn.

Washington's International Monetary Fund has vowed to contribute a further €250bn.

Germany chancellor Merkel said the package was essential to defending the Eurozone project, but that all member states must now "put their house in order."

"[The bailout] proves that we will defend the Euro whatever it takes," said EU economic and monetary affairs commissioner Olli Rehn.

Coming as the IMF also approved a €30bn loan to Greece, the news sent major-economy government bonds sharply lower as "safe haven" buyers switched into commodities and stocks.

US investors looking to Buy Gold saw the price drop to $1185 from Friday's finish at $1209 an ounce.

Gold priced in Euros retreated 5.7% from Friday's all-time record high, bouncing higher from a 3-session low beneath €29,200 per kilo.

"The message has gotten through: the Eurozone will defend its money," claimed French finance minister Christine Lagarde today.

Defending "its money" means the European Central Bank has now reversed last Thursday's refusal to buy government bonds – the apparent cause of last week's collapse in financial assets globally – opting instead "to conduct interventions in the Euro area public and private debt securities markets...to ensure depth and liquidity."

Today's ECB statement says the pan-national central bank will "sterilize [i.e. negate] the impact" of these cash injections in the 16-nation Eurozone economy, but doesn't state how.

The ECB also joins the Bank of Japan and Bank of England in re-opening "temporary liquidity" lines of credit with the US Federal Reserve after the cost of inter-bank loans rose every day for the last two weeks, hitting a 9-month high on Friday after the biggest jump since Jan. 2009.

"With the precious metals delivering some of the greatest returns of any asset class so far in 2010, it is unsurprising to see some degree of profit-taking," says Morgan Stanley's Hussein Allidina in New York today.

Latest data on US Gold Futures and options – released after Friday's close – show speculative players growing their bet on gold rising further to the equivalent of 949 tonnes in the week-ending Tues 4 May.

The volume of Gold Bullion held to "back" shares in the SPDR Gold Trust – the world's largest exchange-traded gold fund – rose 2.5% last week to a new record of 1188 tonnes.

The mint in Poland, which was set to join the Eurozone in 2012 but currently has no accession plans, reported a 400% jump in sales of Gold Bars last week.

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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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