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Gold Prices "Consolidating" as US Targets Gold Futures Traders, Eurozone Risks Called "Absurd"

Gold Prices ticked back from $1145 for the third time in two days early Friday, slipping in what one dealer called "choppy trading" as silver also retreated

"We are riding a small Elliot Wave higher," said Thursday technical analysis from Scotia Mocatta, the bullion bank.

"Our thoughts are that we are in a small wave 4 consolidation of a move that started down at 1075 in December. We would like an eventual test to levels above 1161, but will stop-loss the long gold position below 1113."

On an asset-allocation basis, "Gold looks to be suffering from schizophrenia," says a note from one Hong Kong dealer  – "lower when the Euro weakens against the Dollar...then higher due to its safe haven status.

"The uptrend is still intact, but gold looks to be in consolidation phase for the time being."

Typically moving together with US Gold Prices, the Euro sank early Friday to hit one-week lows vs. the Dollar – and an 18-week low vs. the Pound – on rumors that German chancellor Angela Merkel was about to resign, soon dismissed as "absurd" by Berlin.

Eurozone central-bank president Jean-Claude Trichet yesterday used the same word to describe the idea that Greece will be forced to quit the monetary union because of its huge budget deficits and weakening government bonds.

Greece today submits a new budget to the European Commission, aimed at cutting its debts from 113% of annual economic output.

"These internal strains are independent of the external value of the Euro," says US banking giant Citigroup in a forex report, "but will in turn continue to undermine it."

"It is not a Greek problem but a problem inherent in the whole system," warns Steven Barrow, chief currency strategist at South Africa's Standard Bank in London. "Greece is only the focus."

Repeating his call for the Euro to trade as high as $1.60 as the Dollar weakens to end-2010, "we see Euro/Dollar falling to $1.35 at least by the summer," Barrow says.

The single currency fell to $1.4370 on Friday morning, helping the Gold Price for Euro investors rose unwind the last of this week's 2.1% losses to trade just below €789 an ounce.

Asian stocks were meantime little changed – adding 1.6% for the week – but European shares fell as government bond prices rose and US crude oil slipped below $79 per barrel for the first time in a fortnight.

Proposing strict limits on the size of oil and natural gas positions held by non-commercial "speculative" investors on Thursday, US regulatory chief Gary Gensler said position limits will be discussed for precious-metal derivatives at a meeting in March.

"My guess is that the [Commodity Futures Trading Commission] is reviewing every commodity, much like screening on the airplane," says Martin Murenbeeld, chief economist at Vancouver's DundeeWealth advisory.

"It wants to be politically correct."

"Precious metals are huge international markets," agreed other analysts speaking to Reuters. "There are a lot more trading outside of the United States, particularly in the physical [gold and silver] market."

Daily turnover in US Gold Futures in fact overtook the volume of wholesale gold trading reported by members of the London Bullion Market Association in November.

But best estimates say the LBMA's data understate London dealing by a factor of three if not five times, due to the "netting" effect of how the figures are compiled.

That would make London's wholesale turnover at least three times greater than New York's derivative dealing, equivalent to 668 tonnes per day – the vast bulk of which is unallocated, undelivered, credit-account gold.

"The increase in interconnections...means a higher level of systemic risk than ever before," says Switzerland's independent, not-for-profit World Economic Forum today in its Global Risk Report 2010.

Citing a slowdown in the Chinese economy, government fiscal crises and a new asset-price collapse as the greatest and most costly risks for 2010, the WEF also warns on food-price volatility, a potential oil-price spike and retrenchment from globalization, both amongst developed and emerging economies.

"While sudden shocks can have a huge impact...the biggest risks facing the world today may be from slow failures or creeping risks," says the report.

"Because they emerge over a long period of time, their potentially enormous impact and long-term implications can be vastly underestimated."

The International Energy Agency in Paris today forecast a strong bounce in global oil demand, taking daily consumption back towards 2007 levels.

Management consultants McKinsey meantime warned that the major economy most exposed to excessive debt is the United Kingdom, where public plus private borrowing now stands at 449% of annual GDP – greater by more than a quarter from the start of last decade.

"Even excluding the liabilities of foreign banks based in the UK," says the Financial Times, "the [UK's] ratio still runs at 380% – higher than any country except Japan and closely followed by Spain, where debt has also spiraled dramatically."

UK investors wanting to Buy Gold today saw the price slip below £696 per ounce, down 3.4% from Monday's 5-week highs, beaten only by early Dec.'s record peak.

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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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