Gold News

Gold Price Hits New Record-High vs. Falling Dollar as Libya's Civil War Spreads, Eurozone Rates Capped by Household Debt

The Gold Price rose new all-time highs vs. a falling US Dollar on Monday morning in London, hitting almost $1445 per ounce as European stock markets held flat and major-economy government bonds slipped, nudging interest rates up.

Crude oil rose to new 29-month highs as more rebel-held town's fell to Libyan forces loyal to Colonel Gaddafi.

The Euro broke above $1.40 for the first time since November despite the Moody's ratings agency today downgrading Greek debt again, citing "considerable difficulties with [tax] revenue collection" after Athens' government-bond yields jumped and default-insurance costs touched almost 10.5% per year in the CDS market on Friday.

With the global economy "fragile" and market sentiment "sensitive", the Greek Ministry of Finance retorted in a press release, "unbalanced and unjustified rating decisions such as Moody's today can initiate damaging self-fulfilling prophecies."

Looking at Libya and the Middle East, "If we do see tension escalating further, then we could witness a new high in gold," reckons Ong Yi Ling at Phillip Futures in Singapore.

"Besides Libya, I think investors will also be looking at other countries within the West Asia. For example Saudi Arabia."

Following the European Central Bank's threat to raise its interest rates next month, "All of the Euro-area's excessive [private-household] leverage is in the periphery," says a chart from Credit Suisse analysts – posted by the FT's Alphaville blog – that shows Portugal and Spain with 220% household-debt-to-GDP ratios, and Ireland at 320%.

"Most of that leverage is in floating rate debt," the report goes on, calling the ECB's new-found "inflation vigilance" a "token gesture".

"Because there is still a $1.2trn shortfall of deposits in Europe...it is critical that the ECB continues to provide ample liquidity," says Credit Suisse' global equities team.

"Indeed, over the past 18 months when the ECB suggested it would reduce its liquidity provision, we have typically seen sharp escalations in Euro tensions."

The rising Euro still capped the Gold Price for German, French and Italian investors, however, holding it shy of last week's two-month highs at a price of €33,130 per kilo.

Here in the UK, the Bank of England will keep its interest rates below the rate of inflation for the 15th month running at Thursday's meeting – the longest of negative real rates since 1978 – but Bank governor Mervyn King "feels very sorry for the victims of inflation, especially savers," says an interview with The Telegraph.

"[The] sharp squeeze in living standards...is deeply troubling for them," he told the paper. "They were prudent before the crisis."

The Gold Price in Sterling today touched new 8-week highs at £887 per ounce, even as the Pound rose against the Dollar.

Meantime in the Gold Futures market, "Gold doesn't seem crowded yet, although for the [platinum group metals] the current speculative interest seems acute," says the latest analysis from Walter de Wet at Standard Bank in London.

"This leaves platinum and palladium especially vulnerable to shifts in market sentiment."

Latest data from US watchdog the CFTC show that, in the week-ending last Tuesday, the "Net Long" position of bullish minus bearish bets on Gold Futures held by speculative, non-commercial players rose by 7% to 890 tonnes equivalent.

Previously shrinking by more than 25% for the third time in 12 months, the speculative net-long position has now recovered its previous level in just 8 weeks.

Recovering the Net Long's drops in Jan. and July last year took 16 and 15 weeks respectively.

"We think the physical demand from Asia in particular, particularly from China and India, will continue to underpin the gold market outlook," said J.P.Morgan metals strategist Michael Jansen on Sunday at the opening of the 2011 Prospectors and Developers Association of Canada (PDAC) convention in Toronto.

"[But] we are a little bit concerned about the signs of some fault lines emerging in the market," he said.

"We have received a lot of feedback at the significant wholesale investor level, or the big macro funds, and they are generally starting to pull back their exposure to gold and get more exposure towards equities."

"We see equities emerging from a multi-year funk and moving into a two or three year bull market. And that obviously reduces the need for a portfolio hedge like gold."

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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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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