Gold News

Gold Cuts Weekly Losses as Greece Moves Towards Bail-Out, Complex Derivatives Whack Eurozone Towns

Gold Prices turned higher from $1152.50 an ounce early in London on Friday, cutting the week's losses to 0.4% for Dollar investors as Asian stock markets closed sharply lower and government bonds rose.

Eurozone governments denied that Greece has formally asked for emergency aid.
US crude oil contracts fell below $85 per barrel.

"[Gold] is in a consolidation phase," says the latest note from bullion bank Scotia Mocatta, predicting it "will resolve higher to $1175.

"Only a drop down below $1145 will shake our bullish outlook."

Implied volatility in Comex gold options has remained low meantime, notes another dealer, meaning "Protection to the downside remains cheap" in the derivatives market.

The Euro currency fell back to $1.3520 on the forex market – undoing the last of Monday's sharp gains to trade unchanged from before last weekend's announcement of a €30 billion Eurozone-IMF loan facility – after the Greek government yesterday invited "consultations" on the matter.

The Gold Price in Euros rose to €854 an ounce.

Athens' stock market lost 1%. Other European bourses held flat.

"Looking at the weakness in the Euro, a lot of people are looking for gold to dip before jumping in with buying," said Bernark Sin at the finance division of Swiss refiner MKS to Bloomberg today.

"Gold is down because of the Dollar's strength," agrees Wallace Ng at Fortis bank's Hong Kong office.

"That doesn't mean the trend has changed. The retreat in metals is viewed as a temporary correction."

Silver Prices also bounced higher in London trading on Friday, cutting their weekly loss to 10¢ per ounce at $18.42.

The big iShares Silver ETF trust fund reported further sales on Thursday of the bullion held to back its shares, adding 7 million ounces this week to the 10m sold since late Feb.

Silver Prices have risen by some 13% over that time.

"Long-term solvency risks remain firmly in place," says Morgan Stanley's chief European economist, Joachim Fels, in a note about Eurozone government debt.

"More broadly, and more worryingly...the [Greek] bail-out and the ECB's softer collateral stance set a bad precedent for other Euro area member states and make it more likely that the Euro area degenerates into a zone of fiscal profligacy, currency weakness and higher inflationary pressures over time."

Following this Feb.'s shock at long-standing "interest-rate swap" deals used by Greece to hide the true extent of its fiscal deficits, the small French town of Saint-Etienne is the latest Eurozone municipality to blame investment bankers for complex, expensive derivatives that are now costing them money.

The city of Milan announced last month that it is suing Deutsche Bank, UBS, J.P.Morgan and Dexia for "misleading" its officers into €1.7 billion ($2.3bn) worth of deals.

The Banca d'Italia reckons that local governments in Italy face €1bn of losses on complex derivative deals.

"It's a joke that we're in markets like this," says Saint-Etienne's finance director, Cedric Grail

"We're playing the Dollar against the Swiss Franc until 2042."

On the supply-side of the precious metals market, meantime, the Gold Mining earnings season kicked off this week with world No.1 silver producer Fresnillo Plc – the London-listed Mexican miner – reporting a 31% jump in gold output for Jan. to March compared with the first quarter of 2009.

Diversified mining giant Rio Tinto grew its gold output by 12%, the company said, thanks to improved ore grades.

Canadian and US juniors Alamos and Jaguar yesterday reported lower year-on-year output, with cash-costs per ounce rising sharply.

The Gold Mining earnings season will culminate with the major producers' figures in week-commencing April 26th.

Last year's 6% growth in global Gold Mining output came mostly in the first half of the year.

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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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