Gold News

Gold Price Hits 2-Week High as Euro Debt & "Tail-Risk" Concerns Return, "Cyclical Peak" Spied on Gold Futures Action

The Gold Price rose sharply against all major currencies on Wednesday morning, touching near-two-week highs against the Dollar even as the US currency rose amid fresh European debt and budget concerns.

Crude oil and world equity prices were little changed, but major-economy government bonds rose as UN air-strikes continued in Libya, targeting loyalist Gaddafi troops attacking the rebel-held town of Misrata.

West Jerusalem saw 20 people killed in a bomb attack on an Israeli bus. The Japanese authorities warned of raised radiation levels in Tokyo tap water.

"Although it still remains relatively weak," says Standard Bank's daily note, "[the] moderate strengthening in the Dollar has reduced the safe-haven appeal of precious metals.

Given the recent range-bound Gold Price, and "Considering that the tensions in the MENA region continue and that the Japanese crisis remains a concern, this lack of interest could point to a future bout of profit-taking."

"Flows were lacking" overnight in Asia, local traders agreed, with one Hong Kong dealer calling precious-metal volumes "pathetic".

US Gold Futures, in contrast, now represent "a very tight, congested market," reckons Jeffrey Christian of New York's CPM Group consultancy, "and over the rest of March and into the first week of April, those people who were short 23 million ounces of gold in the Comex April contracts have to either buy those contracts back, roll them forward [into the June contract] or find physical metal to deliver into them.

"All three of those actions have the effect of driving the Gold Price up on a temporary basis," Christian tells South Africa's MineWeb in an interview.

Added to the Middle East and Japanese turmoil, "That's another reason why we think that we may be approaching a cyclical peak in the next few weeks."

Over on the currency markets Wednesday morning, the Euro slid 0.8% vs. the Dollar from Tuesday's new 2011 high, as borrowing costs for both the Irish and Portuguese governments rose back towards record levels in the bond market.

Greek prime minister Papendreou told Stern magazine that restructuring Athens' debt "would probably lead to the collapse of Greek banks," and claimed that German taxpayers would profit from the financial aid they're making via the stabilization fund being discussed this week.

The Gold Price in Euros rose to unwind almost the last few cents of last week's 2.0% drop, however. The stabilization fund meetings may simply delay an expansion of the union's Stability Fund until June, banking analysts warned.

Portuguese prime minister Socrates meantime faced a vote against his government's debt-reduction plans, while UK chancellor Osbourne's heavily-trailed second budget speech for the coalition government failed to stem a sharp fall in Sterling.

Now faced with CPI inflation of 4.4% per year, the Bank of England – charged with targeting inflation of 2.0% – today said this month's decision to hold base rates at 0.5% was an exact repeat of Feb., with the voting committee split the same four ways.

The Gold Price in Sterling rose sharply, up by 1.3% to near 1-week highs at £882 per ounce.

"Maybe some tail risk protection is advisable still even after all the recent events in MENA and Japan," says analyst Charlie Diebel at Lloyds TSB in London, noting that US Treasury bond yields have recently fallen below German equivalents.

"The last sustained period where T-Notes traded through Bunds was in 2008/09 and prior to that in 2002/03 and the big bond sell off in 1994."

Following claims that Colonel Gaddafi is using Libya's gold reserves to pay his mercenary army, the US Treasury said last night that if Libyan oil facilities "come under different ownership and control" from the regime, it "may consider authorizing dealings with such entities" – giving the rebels a source of funds from Africa's third-largest crude oil production.

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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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