Gold Bounces from "Surprise" Euro-Gold Liquidation

From Adrian Ash

BullionVault

Physical Buying “Strong” Near $1200

• WHOLESALE GOLD rallied in early London dealing on Friday, rising 1.2% from yesterday’s sharp drop to 6-week lows and holding steady as new US data showed 125,000 jobs being lost in May, with unemployment standing just shy of 1-in-10.

• The Euro extended its gains on the currency market, while European stock markets bounced from this week’s 5% drop towards 9-month lows and major-economy government bonds eased back.

• US crude oil contracts slipped further, but both base and precious metals dealers reported “bargain hunting”, with one calling physical gold demand “strong” around $1200 an ounce.

• Silver prices briefly crept above $18.00 after losing more than a dollar-per-ounce to a 3-week low of $17.73 late Thursday.

• “All metals rebounded in Asia because of Chinese buying,” says a note from Mitsui in Hong Kong. “Customers are mainly looking for physical gold and palladium, with little interest in platinum.”

• Thursday – the first day of the third quarter – saw gold prices slump and the Euro jump after ending the first-half of 2010 some 13% higher and 14% lower respectively against the Dollar.

• “Gold’s sell-off was violent,” says Walter de Wet at Standard Bank. “We were surprised by the speed and the depth.

• “The strength of the Euro saw large-scale liquidation of long Euro-Gold positions” – a trade widely advised by bank analysts as the Greek debt crisis intensified in early spring.

• Speculative betting against the Euro peaked in mid-May with a “net short” position worth 40% of all EUR/USD contracts on the CME’s International Money Market, slipping back to 21% by the last week of June.

• Speculative betting in US gold futures and options meantime jumped to a near-record “net long” position, rising by 3.2% and reaching the equivalent of 1016 tonnes by June 22nd in what VM Group analysts calls “a healthy dose of speculative activity”.

• Thursday saw the Euro regain three of the 25¢ it’s lost vs. the Dollar since New Year’s Day.

• Gold priced in Euros dropped 5.8% – its sharpest one-day loss since Oct. 2008 – sinking to a five-week low of €30,740 per kilo.

• “There hasn’t really been a trade off for people to call positions in gold yet. We [were] aimlessly waiting in vain for dips,” said David Hall, head of Credit Agricole’s private bank FX and precious metals team, to CNBC this morning.

• “If you look at the [10-year] chart and you re-base gold at a 100 versus the Dow Jones, it’s been a place to hide.”

• Thursday’s sharp drop in the gold price saw New York’s SDPR Gold Trust – the world’s largest gold ETF trust – shed 0.1% of the gold backing its shares, the first decline in 11 weeks.

• From the start of the year, the fund’s hoard, which is held at HSBC bank in London, has swollen by 16% to a record 1319 tonnes.

• “People like gold when it’s all a bit chaotic out there,” says Sean Butler, investment director of New Zealand’s Liontamer group, launching a new structured product with a six-year lock-up – “the first local index offering exposure to international price movements in gold,” according to the National Business Review.

• “Gold is widely used as a safe haven for investors, especially during volatile economic conditions and times where there is uncertainty about major currencies like we are currently experiencing with the Euro.”

• Over the next 30 months, says Barclays Capital, maturing debt will cost Eurozone banks €1.5 trillion.

• This month’s “stress tests” on Eurozone institutions will force up to 20 banks to raise some €30 billion between them to meet capital requirements, the Financial Times reports.

Adrian Ash

BullionVault

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Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

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