By by Ben Traynor
Thursday 30 June, 08:00 EDT
Gold Holds Steady, “Train Wreck” Greece Could “Give Up” on Cuts, “QE2 Inflation a Success”
THE U.S. DOLLAR gold price rose to $1512 an ounce Thursday morning London time – a 0.7% gain on the week so far – before falling back towards lunchtime, as stocks held flat and commodities fell ahead of the second Greek austerity vote.
Gold prices in Euros meantime climbed to €33,596 per kilogram (€1045 per ounce) – but still 1.3% down on the week – as the single currency hit a near-three-week high of $1.45.
Greece passed the first of two austerity votes on Wednesday, 155 to 138. The Greek parliament was due to hold a second vote – on how to implement cuts and privatizations – around Thursday lunchtime.
“Overall, the impact of the [Greek] yes vote is to assert a risk on approach,” says one bullion dealer here in London, adding that increased risk appetite has broadly benefited the precious metals complex.
“We may see gold test higher tonight” if the second vote passes, one Hong Kong trader told Reuters on Thursday. However, the upside for the gold price is unlikely to be above $1520 per ounce, the trader said.
“Demand for physical gold went up considerably” in Germany following recent falls in the gold price, according to the latest note from German precious metals refiner Heraeus.
There were more riots in Athens last night following the ‘Yes’ vote, with protesters starting a fire at the Greek finance ministry.
“There is a real risk that, given the political problems…that at some stage it’s the Greeks who give up on the program,” says Andrew Balls, head of European portfolio management at PIMCO.
“There’s almost guaranteed collapse or crisis in the Eurozone,” reckons Warwick McKibbin, a board member for the Reserve Bank of Australia, the country’s central bank.
There are “serious global inflation problems and a policy response looming…all of these have implications for relative commodity prices,” says McKibbin, who likens the Eurozone crisis to a “slow motion train wreck”.
The silver price meantime poked its head briefly above $35 per ounce – a 2% gain for the week – before easing back.
“[The] silver market has been very cautious,” says a bullion dealer in Hong Kong.
“Dealers still prefer to buy the dip instead of chasing.”
Here in the UK, Sterling continued to fall against the Euro and US Dollar Thursday morning as teachers and other public sector workers staged a one day strike in protest at planned pension reforms.
The Sterling gold price, meantime, jumped to £946 per ounce Thursday morning – 2% off this month’s record spot market high – before easing back slightly.
Over in the US, QE2 – the Federal Reserve’s $600 billion asset purchase program begun last November – officially came to an end on Thursday. The Fed has said, however, that it will continue to buy US government debt with the proceeds from maturing bonds.
There is a big question mark over who will replace the Fed’s buying power in the bond market “and at what price”, says Priya Misra, head of US rates strategy at Bank of America Merrill Lynch.
QE2 “has clearly worked” says Alan Wilde, head of fixed income and currency at Baring Asset Management in London.
“I’m surprised central bankers have not tried to take more credit for getting some inflation back into the system. They should be shouting this from the rooftops.”
US consumer price inflation rose to an annual rate of 3.6% in May. UK inflation ran at 4.5% per year in the same month – more than double the Bank of England’s target.
Data published Thursday by Eurostat show inflation in the Eurozone at 2.7% for June. The European Central Bank targets an inflation rate of 2% or below.
Global liquidity will be “fuelled more by government borrowing now than loose monetary policy” says Marc Ground, commodities strategist at Standard Bank, who argues that growing liquidity means the gold price “should rise”.
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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