Gold News

Gold Price "Positive" But Still Stuck with Euro Correlation as Ireland Refuses Bail-Out, Chinese Rate Fears Weigh on Metals

Gold Prices fell back towards Friday's 1-week low in Asian and London trade on Monday, holding above €1000per ounce for Euro investors as Irish bonds rallied but the single currency continued to drag along 7-week lows to the Dollar.

US stock markets opened higher aftertheir worst week in 3 months, as new data showed a surprise jump of1.2% in Retail Sales, plus a 0.9% rise in Business Inventories.

Following its worst week in only amonth, the Gold Price in Dollars initially jumped in Asia to $1375 on Monday morning, with “bargain hunting evident” according to onedealer.

But it slid back to $1361 per ounce as base metals and emerging-Asia stock markets fell, and the US currencyrecovered a 6-week high to the Japanese Yen at ¥83.

The Silver Price in Dollars tracked gold closely, first rallying from last week's 2.7% loss only to slip back below $26 per ounce, almost 12% below last Tuesday's near-record peak.

“The Euro/Gold correlation has been seen breaking down,” says a London trader, “but not nearly to theextent that it did at the height of the Greek crisis – not yet, atleast.”

“The [gold] market continues to tradealongside the single currency,” says VTB Capital's Andrey Kryuchenkov in London, speaking to Bloomberg.

"[But] in the long run, gold is still looking case fears in the Eurozone escalate.”

Dublin's government denied on Sunday night it was seeking European or IMF aid, asserting that Ireland is ”fully funded until well into 2011.”

“We must show clearly that Irelandcan stand alone and it’s determined to get out of the financial difficulties we are in,” said Batt O’Keeffe, business minister,to Dublin radio today.

Gold Investment demand in Germany –the Eurozone's No.1 economy, where hotly-denied rumors say Berlin is pressing Ireland to accept a rescue – “again resurfacedafter an exceptionally calm summer” in late Oct. and early Nov., says Wolfgang Wrzesniok-Rossbach at refining-groupHeraeus in Hanau, “but it is still very far from its high volumes”of May and June's Greek deficit crisis.

“Gold Bars of almost alldenominations are in demand,” writes Wrzesniok-Rossbach in hislatest published weekly report. “As far as the smaller bars areconcerned, the coming Christmas season is probably drawing inbuyers.”

Over in base metals, continued rumorsof tighter monetary policy in China following last week's stronger-than-expected inflation data forced Shanghai zinc prices 7%lower, triggering the market's “limit down” block on furtherfalls.

“Copper premiums in Asia have [also]continued to come under pressure,” writes Leon Westgate at StandardBank.

“Ominously, its perhaps worthpointing out that the last time...Shanghai premiums were this low wasin mid-April, shortly before copper fell out of bed and dropped from$7,500 to just above $6,000 in the space of 6 weeks or so.”

London copper futures slipped to $8,586per tonne on Monday morning.

“Investors have become increasinglyconcerned about sovereign default and they think that most currenciesshould fall against the [Chinese] Renminbi,” says Danny Gabay atFathom, an economics consultancy in London, quoted by the FinancialTimes.

“But since non-convertibility means they can’t buy the Renminbi, they Buy Gold instead, which can’t be debased.”

Research from market-development group the World Gold Council showed in March that Dollar Gold Prices weremore tightly correlated with the Shenzen and Shanghai stock markets over the previous 5 years than with either crude oil or the GSCIcommodities index.

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Adrian Ash

Adrian Ash, BullionVault Gold News

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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