Gold News

Gold "Proves Crisis Protection" for Euro Investors as Greece Says Bail-Out "Moment Has Come"

Gold priced in Dollars held onto a slight weekly gain as Friday's close drew near in London, trading above $1141 an ounce as the Euro rallied – and world stock markets gained – following Greece's formal request for a joint European and IMF bail-out.

Gold
priced in Euros spiked within 0.3% of April 9th's record, hitting €27,743 per kilo before easing back as the single currency rose.

For British investors wanting to Buy Gold, the price held at £743 an ounce – 0.3% higher from last Friday's finish – after news that the UK economy grew half-as-fast as analysts forecast between Jan. and March, adding just 0.2% year-on-year.

Crude oil and broader commodities were little changed by the Euro bail-out request.

"Greece is asking for the activation of the support mechanism," said a
letter sent this morning by finance minister Papaconstantinou to the
European Commission, fellow Eurozone states, and the European Central
Bank.

"The moment has come," Greek premier Papandreou told reporters, apparently catching the European Commission unawares.

First it denied receiving a formal bail-out request. Then the EC said it will take "some time" to trigger the rescue, currently agreed at a maximum €45 billion (£60bn).

Thursday saw Greek bond prices sink to new crisis-lows, driving the yield offered by two-year debt above 10%.

German Bund prices ticked lower together with UK and US Treasury debt on Friday, while Greek bonds rallied.

Athens' stock market jumped almost 2%. Germany's Dax rose 1.4% by lunchtime in Frankfurt.

"Although gold's Dollar-price may still be 6% below its late-2009 highs, in Euro terms Gold Prices are up 6% from their Dec-09 peak," notes Patrick Artus' team at French bank Natixis.

"This demonstrates gold's ability to protect investors from crises that debase their own currency, but not those of other sovereign issuers."

"German investors have not been put off by the all-time high expensiveness of gold in Euro-terms," reports Wolfgang Wrzesniok-Rossbach from Hanau-based refinery group Heraeus.

"The Greek financial crisis continues to drive investors here to the yellow metal."

Industrial demand, in contrast, "has shown a slight reduction in demand – current price levels appear to be simply too high," says Wrzesniok-Rossbach.

"Even at record prices of almost €865 an ounce" however, scrap-gold flows into the refinery "have slowed down in recent days," he adds.

Over in the credit-insurance market, the cost of protecting Portuguese government bonds also slipped back on Friday – together with Greek credit-default swaps – from yesterday's new record highs.

"The market believes that Greece will be forced to restructure its debt," says Simon Derrick at Bank of New York Mellon in London, and "The logic of such a situation for [Greek bond] investors is also simple enough:

"There is no last mover advantage in such a circumstance.

"We also note outflows just starting to build from Portuguese debt in recent days," Derrick is quoted by the FT's Alpha blog, "although they are still relatively modest."

Precious-metals analyst Walter de Wet at Standard Bank also notes fears of Euro-debt contagion today, writing "We doubt [the Greek rescue] would be enough to lift concerns over sovereign debt levels in certain European countries."

Even though the physical market is currently "quiet and directionless", de Wet reports, "Underlying uncertainty should continue to support gold."

Looking to Buy Gold today? "If there's an easier way, I've yet to find it," says one BullionVault user...

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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