By From Adrian Ash
“Headline-Led” as Euro Falls on Debt Warning
THE PRICE OF GOLD slipped to a two-day low in London on Wednesday morning, dropping 1.5% from yesterday’s Dollar high at $1408 per ounce as Asian stock markets closed up to 2% lower and European stocks lost 0.7% on average.
The fall in gold prices – and a rise in the Dollar’s forex value – came despite the US Federal Reserve last night vowing to continue its $75 billion per month quantitative easing and keep interest rates at “exceptionally low levels…for an extended period” even in the face of strong retail-sales and factory-gate inflation data.
Wednesday brought new figures saying US consumer prices rose faster than expected last month, up 0.8% year-on-year when fuel and food costs are excluded – the Fed’s preferred measure of inflation.
The 16-nation Euro currency meantime dipped through $1.33 – holding the gold price in Euros above €33,500 per kilo – after the Moody’s rating agency caught up with its competitor Standard & Poor’s and put Spain’s government debt on “negative watch”.
Crude oil cut its early losses, but broad commodity markets held 0.5% down on the day by lunchtime in London.
Silver prices bounced 3.4% below Tuesday’s peak near $30 per ounce.
“It is difficult to foresee much happening directionally [for silver and gold prices ] into year-end,” says a note from a London dealer today, “as positions are squared up [for] the New Year.
“We are likely to be looking at a headline driven market for the next few weeks.”
“Coming the day after a difficult [Spanish bond] auction and with the 10-year [bond yield] hitting a multi-year high of 5.43%,” says Gary Jenkins of Evolution Securities in London, quoted by the FT’s Alphaville blog, “[Moody’s announcement] is likely to lead to even more spread widening” between low German Bund yields and interest rates on weaker ‘peripheral’ debt.
Standard & Poor’s yesterday cut its debt outlook for Belgium, still run by a caretaker government six months after an indecisive general election.
A 20,000-strong protest led by public-sector unions in the Greek capital Athens today ended with rioting and clashes with police.
“Panic selling in precious metals [came as] the Euro sank” in Asian trade following Moody’s Spanish warning, says a Hong Kong dealer.
“Physical selling was evident in silver and palladium” he adds, as US Treasury bond yields rose further to touch 7-month highs.
“Palladium and silver outperformed gold and platinum by a huge margin in 2010,” notes Axel Rudolph in his latest technical analysis for Luxembourg’s Commerzbank.
Comparing the relative gains in precious metals this year – and noting the strong pairing of gold with platinum, and of silver with palladium – “Silver is the safer metal to hold, since it is less volatile than palladium.
“Furthermore during the sharp correction in April and May, palladium dropped by over 30% whereas silver did so by around 13%, thus making it the safer option for 2011.
“Silver currently shows the best risk/reward ratio.”
Major government bond prices rallied meantime on Wednesday from their recent lows, nudging 10-year US Treasury yields down to 3.43%.
“What is happening [in bond yields] is a move towards normalisation,” writes Financial Times economist Martin Wolf of the recent surge in longer-term interest rates, denying that ‘bond vigilantes’ are punishing government borrowers for poor policy choices.
“[It] is excellent news. Policy is working.”
But “there are good reasons for bond investors to worry about the US,” writes Wolf’s colleague John Plender, also in today’s FT.
“It is worth asking whether [bond vigilantes] can exercise real power over the US, which continues to run the world’s main reserve currency while pursuing policies that many investors regard as fiscally irresponsible.”
Adrian Ash
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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 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.
(c) BullionVault 2010
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