By by Ben Traynor
Weds 11 May, 08:45 EST
Gold Hits 1-Week High as Europe “Rearranges the Deckchairs” on Titanic Greek Debts, Silver Regains One-Third of Plunge
WHOLESALE MARKET PRICES to buy gold rallied to a 1-week high at $1526 per ounce in London trade Wednesday morning – up 4.3% from last Friday’s low – before falling back as world stock markets also tempered their rally.
Major-economy government bonds fell, nudging interest rates higher.
Commodity markets were mixed following the announcement of 25% hikes in the margin requirements on crude oil contracts.
The silver price recovered a third of its 30% plunge from end-April’s 31-year high, hitting $39.18 per ounce at Wednesday’s London Fix.
“We can get out of this difficult situation only if we properly rebuild the foundation, not just help without Greece doing anything,” said German chancellor Angela Merkel today, as Greek newspapers claimed that a fresh €60 billion loan from the IMF, European Union and European Central Bank will demand “bold” privatizations of state-owned assets.
But arranging new loans to Greece is “a bit like rearranging the deckchairs on the Titanic” says currency strategist Steve Barrow at Standard Bank.
“Eventually Greece has to restructure,” agrees Alan Ruskin at Deutsche Bank. “It’s just a question of first ring-fencing all the potential losers.”
Yields on Greek 10-Year bonds rose to 15.5% on Wednesday morning, up from 15.4% a day earlier.
The price to buy gold in Euros hit a new high for the week – less than 1.5% off its record high of Dec. 2010 – as the Euro continued to fall on the forex market, taking the single currency’s losses to 3% against the US Dollar since last Wednesday.
The gold price in Sterling meanwhile fell throughout the morning, slipping from a 1-week high of £932 per ounce as the British Pound rose sharply on the Bank of England’s latest Inflation Report forecasts.
“There is a good chance that, if utility prices rise further later in the year, inflation will reach 5%, before falling back through 2012 and into 2013,” said Bank governor Mervyn King in a press conference.
The UK’s key interest rate has now been held at 0.50% for 25 months running, but UK interest rates “are more likely than not to start rising gradually late in 2011,” believes Howard Archer, chief UK and European economist at IHS Global Insight.
“However, Mervyn King has highlighted that both the growth and inflation outlooks are highly uncertain, thereby suggesting that the Bank of England is keeping its options fully open on exactly when it will start lifting interest rates.”
“[China’s] inflation is too high and will keep the policy bias in favor of more action over the next few months,” said Brian Jackson, emerging markets strategist at Royal Bank of Canada, this morning after Beijing released higher-than-expected inflation figures for April.
“We expect another two rate hikes and further Yuan appreciation against the Dollar.”
Consumer prices rose 5.3% year-on-year, according to official figures. Producer prices rose by an annual rate of 6.8%.
China’s premier Wen Jiabao has set a target of 4% for consumer price inflation. Bank-savings deposit rates in China – the world’s second-largest market to buy gold – are currently held at 3.25%.
“A true gold standard favors no one nation, but synchronizes the balance of payments between all,” said Jim Grant, publisher of long-running finance journal Grant’s Interest Rate Observer, calling for a return to gold-backed money in a speech given in Edinburgh on Tuesday.
“If the Dollar was as good as gold, other countries would want to buy it,” said US presidential candidate, billionaire publisher Steve Forbes, in an interview on Monday.
Ben Traynor
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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
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