Gold News

Gold Dips, Sterling & Euro Slide vs. Dollar, as Greece Faces "Question of Survival"

The Gold Price fell back to $1111 an ounce for the second time in two days early in London on Tuesday, slipping together with European stock markets as the US Dollar jumped on the forex market.

Government bonds rose and US crude oil eased back to $79 per barrel, while trading-room gossip said the Swiss National Bank was actively selling its currency for Euros to cap a 14-month high in the Franc.

By lunchtime in London, Gold Prices were unchanged from Tuesday last week vs. all major currencies bar the British Pound, recording its fifth Gold Fix in succession above £720 an ounce.

The metal previously broke that level over five successive Gold Fixes at the start of Dec. '09.

"Even as the situation has unfolded, UK [inflation] forecasts have tended to be too optimistic," notes Steven Barrow, chief currency strategist at Standard Bank today.

"The Bank of England's inflation record compares poorly to the US Fed's...[which is] now moving slowly to tighter policy.

"Throw in concerns about BoE-style inflation targeting...and the Dollar will win out as
Sterling slides towards the $1.45 level over the next few months." 

The Pound slumped towards last week's 9-month low at $1.5350 early Tuesday, down almost 2¢ by lunchtime in London, after Bank of England governor Mervyn King told a parliamentary committee that he may extend Britain's £200 billion "asset purchasing program" (aka money printing), depending "on how things pan out."

New data showed UK mortgage approvals collapsing last month – down by one fifth to a 13-year low.

The Euro meantime dropped 1.5¢ to $1.3550 after a much weaker-than-expected reading on Germany's Ifo index of business sentiment.

Trade unionists blocked staff from entering the Athens Stock Exchange early Tuesday. Greek shares then sank 1.8% after alternative facilities were found.

"The European Union should have controlled [member budgets] more rigorously in the past to ensure that the stability pact was in fact being observed," says Greek prime minister Georgios Papandreou after false accounting tricks used by Athens were found to have been used by other Eurozone states.

"We all know that the whole thing [of reducing the deficit from 12.7% to 3.0% of GDP] will be very painful," he tells Germany's Der Spiegel in an interview today.

"It's a question of survival for our country."

The European Commission flatly denied yesterday's Der Spiegel claim that a Greek rescue package worth €25 billion had been prepared, saying "There is no such plan."

Stocks on the Dubai bourse meantime fell hard after the government denied that
the struggling Dubai World real-estate group – which owes banks in the
United Arab Emirates some $15 billion – had received $5bn in new state
aid.

"The recent strong price action [in Gold] has us bullish while 1098 holds the downside," says a note from London market makers Scotia Mocatta.

"Silver...has been [also] tracking a nice upward channel."

Analysing last week's announcement that the International Monetary Fund will sell the 191 tonnes of Gold Bullion it now has slated for sale on the open-market, "The People's Bank of China is the most likely central bank buyer," reckons Citigroup analyst Alan Heap.

"They must be buying something," says Heap, and "The bank is deeply dissatisfied with the performance of its US Treasury holdings. It has made clear its intention to diversify including into gold."

Between Nov. and Dec., the Chinese central bank sold $46bn-worth of US Treasury bonds.

But China "isn't a realistic candidate" for the IMF's open-market sales, reckons George Milling Stanley of the World Gold Council, speaking to Bloomberg yesterday, because the People's Bank is more likely to "buy local gold production.

"There are a lot of central banks out there that are buying local production in local currency. The IMF would have no interest in that local currency. The IMF is looking for Dollars."

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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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