By From Adrian Ash
“Ugly Contest” from Dollar to Euro
THE PRICE OF WHOLESALE gold continued to hold steady above $1370 per ounce for US savers on Thursday, trading at two-week highs vs. the Euro as world stock markets gently extended yesterday’s sharp rally.
Crude oil pushed higher to $84 per barrel. Like gold, silver prices held steady, trading around $27.50 per ounce.
“Gold caught it breath” on Wednesday, says Swiss refiner MKS’s finance division in a note.
“The gold price tried a number of times to break through $1377, but there were some very large offers [to sell] there.”
“After two down weeks, is this a sell on rally or buy on dip?” asks Russell Browne at bullion bank Scotia Mocatta in his latest technical analysis.
“We believe the risk is higher, with only a move below $1330 causing significant liquidation” in gold bullion and futures contracts.
Over on the currency market, “The so-called ‘ugly’ competition between the Dollar and the Euro looks as if it is swinging back in the Dollar’s favor,” notes Steven Barrow, chief currency strategist at Standard Bank in London.
“The deflationary policy mix in the Eurozone could easily help contribute to a much deeper debt crisis, with even the very future of [monetary union] thrown into some doubt.”
The Euro today touched Wednesday’s two-month lows to the Dollar, briefly dipping below $1.33.
Bloomberg News quoted Spanish real-estate entrepreneur Fernando Acuna warning that foreclosures in Spain “may triple next year” thanks to new accounting rules which will force banks to dump falling assets from their balance-sheets.
London’s LCH.Clearnet settlement provider meantime raised the margin payments required to trade Irish government bonds for the second time in 10 days.
Dublin’s debt fell hard in price, despite yesterday’s four-year austerity plan announcement, pushing the yield offered to new buyers back to last week’s level near 9%.
“Relief in the European bond market on the back of Ireland’s decision to resort to the EU bailout fund has turned out to be short-lived,” writes Frankfurt-based analyst Ulrich Wortberg at Helaba Landesbank.
“Risk premiums are heading higher.”
Quitting the Euro and returning to “the Peseta, Lira, Escudo, Drachma etc. [would mean] devaluations would follow immediately,” says chief banking analyst Arturo de Frias at Evolution Securities, and such devaluations would mean write-offs “of a size that would render the whole European banking system completely insolvent.”
European Central Bank council member Axel Weber said governments can increase the size of the European Union-led bailout fund if necessary to restore confidence in the euro.
“Seven hundred and fifty billion Euros should be enough to assure the markets,” said European Central Bank member Axel Weber in a speech at the German embassy in Paris late on Wednesday.
“If not, [the stabilization fund] will have to be increased.”
Adrian Ash
Gold price chart, no delay | Buy gold online at live prices
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 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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