Gold News

Gold Flat, Silver Up as "Risk Trade" Returns with Greek Downgrade, Spanish Bank Warning

Prices edged higher for Dollar investor wanting to buy gold early Tuesday, but held below €1000 per ounce for French, German and Italian buyers as stocks, commodities and currencies were little changed.

Asian stock markets ended the day flat. European equities crept higher as the Euro ticked towards Monday's two-week high just below $1.23.

Crude oil held just above $75 per barrel. Silver Prices crept back towards Monday's new June highs at $18.58 an ounce.

"A lot of the risk trade has abated with a rally in the Euro," said a Chicago futures trader to Bloomberg on Monday – a "difficult session" according to one London Gold Dealer.

"That's the biggest reason to sell gold."

Gold recovered half of yesterday's losses, however, after a further downgrade of Greek government bonds by Moody's Investor Services – a decision called "both surprising and unfortunate" by European commissioner Olli Rehn today.

The decision means Citibank and Barclays Capital will remove some of Athens' debt from their investment-grade government bond indices, forcing a sale of perhaps €20 billion worth by index-tracking fund managers.

Previously needing to raise €53 billion this year, Athens can now call upon the joint EU-International Monetary Fund rescue package, currently priced at €110bn.

"If the Spanish state has difficulty in financing itself outside Spain, then the difficulties will be even greater for those in the private sector," said Spanish bank BBVA's chairman Francisco Gonzalez on Monday.

Deutsche Bank notes that Eurozone banks must raise €700 billion over the next three years, just to repay maturing debt and interest payments.

"It's not easy to say why the Euro has spiked back up recently," writes Steven Barrow, chief currency strategist at Standard Bank in London.

"Most likely it is for no real reason other than the market is very short."

Comparing the single currency union with the United States, "The Eurozone is a lot closer to the edge [of a double dip recession] given the significant fiscal restraints.

"So...the Euro should peel away to parity over the long haul."

Across in the US, however, "The economic reports for May are rolling in," says The Atlantic magazine, "and so far they're pretty ugly.

"The economy [has] seemed to take a step back."

New data today showed US import price inflation slowing sharply as the Dollar rose on the currency market in May.

UK retail-price inflation rose at the fastest quarterly pace in 19 years, while Germany's ZEW economic sentiment survey showed a marked down-turn.

Despite buying €56 billion worth of covered bonds via its purchasing programme since May 2009, the European Central Bank has seen government bonds fall back to pre-program levels, the FT's Alpha blog notes.

Some 76% of the assets now held by the Bank of England as collateral for loans to commercial UK banks are "own-name" securities, the Bank reported yesterday, meaning illiquid, hard-to-price assets such as mortgage-backed bonds that the borrowers themselves created.

"The challenge for gold is to replicate the heightened ETF demand that occurred in the second half of May," says Edel Tully, chief metals strategist at Swiss bank UBS's London office.

"On the scrap-supply front, metal is visible, but this supply source is not at extreme levels. Jewelry demand from India and other regional hubs in Asia is also sedate."

Local premiums paid on Gold Bars over and above London wholesale prices by Indian dealers ticked higher today, Reuters reports, as scrap flows subsided.

The Rupee price of gold slipped further from last week's new record high above 19,000 per 10 grams, however, as "India is entering the lean season for gold deals as the annual monsoon rains sweep the country," says the newswire.

Domestic Gold Prices in Vietnam, in contrast, leapt to new record highs, says Viet Nam Newswire from Hanoi, while in the leveraged US Gold Futures market, latest data from the CFTC regulator shows "Comex net longs rose for the second consecutive week" in the 5 trading days ending last Tuesday, notes the VM Group consultancy.

"Gold ETF holdings rose for the twelfth consecutive week."

Even so, "A lot of average Americans are eager to sell...[rather than] clamoring to Buy Gold," says the San Francisco Chronicle.

"Bubbles never blow up without the American investor class being overexposed to the item that's in the bubble," reckons Nick Zaharias, a hedge-fund consultant quoted by the paper.

He currently holds 30% of his family's assets in gold.

"If gold were near a peak, people would be buying, not selling gold at house parties," he says.

Looking to buy gold today? Get started with this free gram of fine gold in Zurich, Switzerland right now at BullionVault...

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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