Gold News

Gold Hits 1-Week Low as Euro Sinks on Athens Riot, Crude Oil Falls through $80

Dollar Gold Prices fell hard as the New York opening drew near on Wednesday, falling to a 1-week low as European shares, non-US currencies and global commodities extended yesterday's plunge.

Three people were reported killed in an Athens bank fire, set ablaze amid a Greek general strike.

Marchers protested against the government's "austerity" budget, needed to seal a €110bn bail-out by the European Union and IMF.

"Petrol bombs were thrown at police," says the BBC, "who responded with pepper spray, tear gas and stun grenades."

Crude oil today dropped through $80 per barrel, while the Euro currency sank further below $1.30 – a level first broken on the way up in Nov. 2005.

Back then, the Gold Price in Dollars traded at $460 an ounce. Today it slid 1.1% to $1160 an ounce, but held near fresh all-time highs for European investors, almost one-fifth above the start of this year.

"Gold does not return any dividend like other assets, so if faith returns in the global economy we will start to see a move away from gold," says Raymond Key, head of metals trading at Deutsche Bank, in an interview with Reuters.

"In three or four years, the extent of the uncertainly in the market might decrease and this would lead to the dramatic downfall of Gold Investment."

Typically moving together against the Dollar, the Euro and Gold have sharply diverged sharply in the last week.

The rolling 1-month correlation of daily prices – which averages +0.51 since the start of Jan. 2000 – dropped yesterday to minus 0.44, a 14-month low.

The British Pound also rose vs. the Euro early Wednesday, hitting a 9-month high – and adding 7% from eight weeks ago to €1.17 – despite ongoing fears of a "hung parliament" in tomorrow's UK general election.

British gilts rose together with German Bunds and US Treasuries as stock markets fell, driving the cost of financing to new multi-month lows for London, Berlin and Washington.

Platinum and palladium – both used in auto-catalysts – fell sharply against vs. the Dollar, taking their drop from last week's multi-month highs to almost 6%.

Silver Prices extended their drop to nearly 7% from Monday's 5-month peak, dropping below $17.60 an ounce.

"It is hard to be bearish on Gold in the current macroeconomic environment. However, the physical market suggests we shouldn't be overly bullish either," says Walter de Wet at South Africa's Standard Bank.

"We are seeing good volumes of scrap coming to the market...which recalls the market conditions of Q1:09 when ETF holding rose 400 tonnes amid heightened credit risk.

"Scrap selling isn't as strong as in Q1:09," says Standard, "but neither is ETF buying. Current scrap selling seems to cap gold rallies, not push gold down much" in Dollars.

European stock markets today fell up to 0.9%, dropping to new two-month lows as Greek, Spanish and Italian bonds fell hard once again.

Spain's government denied rumors that it had asked the International Monetary Fund (IMF) for €280 billion in aid.

Dollar Gold Prices briefly crossed above the S&P 500 index for the first time in two months as US stocks fell on Tuesday.

"I want to underline that Greece is a unique and particular case in the EU," said European commissioner Olli Rehn to reporters earlier, "because of its precarious debt dynamics...[and because it] has cheated with its statistics for years and years."

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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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