Gold Slips as Silver & Oil Rise with Stocks

From Adrian Ash

BullionVault

Athens Says “Debt Exists to Be Restructured”

THE PRICE OF GOLD gave back an overnight rise to 8-session highs at $1365 per ounce in London trade on Monday morning, falling back as US stock markets opened strongly higher following better-than-expected manufacturing data.

Crude oil prices jumped almost 2.5%, and silver prices touched new three-decade highs above $25 an ounce.

A sudden spike in the US Dollar’s exchange-rate with the Japanese Yen failed to hold, keeping it at 15-year lows. The Euro struggled below $1.40, however.

“The gold physical market is now providing support rather than resistance,” says Walter de Wet at Standard Bank.

“Overall, we believe that should [continue] until the end of January. However, post-Diwali (5 November), this support may be situated at a lower price level – possibly below $1300 per ounce, depending on [the Fed’s] actions on Wednesday.

“Resistance in the physical market may [then] grow stronger post-China New Year [on 3 Feb.] and run well into 2011.”

Over in the leveraged derivatives market, meantime, new data from the US gold futures and options market showed speculative players cutting their bullishness on gold for the second week running in the week to last Tuesday.

Reducing their “net long” position to the equivalent of 946 tonnes, so-called “non-commercial” and small, private-investor traders held the smallest net-long position in gold futures and options since late August.

Back then, the gold price was trading more than $100 lower per ounce.

Looking ahead, Wednesday’s widely-expected announcement of new quantitative easing from the US Federal Reserve continues to occupy most major-bank analysts, with Standard Bank repeating its view that gold is already priced for $500bn of QEII.

“Quantitative easing threatens to postpone the necessary rebalancing of the US economy,” writes GMO asset allocation advisor – and financial historian – Edward Chancellor in the Financial Times‘ Fund Management supplement today.

“After the great credit binge, deflation reflects the desire of households and companies to pay down their excessive debts. It is a symptom, not a cause, of a problem [as] the experience of Japan over recent decades shows.

“The US needs to save and invest more to ensure its long-term prosperity.”

Meantime in the stock market, government-supported insurance giant AIG said it will repay almost $37bn after selling two foreign businesses.

Shares in bond-insurance giant Ambac plummeted, however, after it said it’s trying to negotiate a “pre-packaged” bankruptcy with its senior creditors.

Last month the troubled bond insurer reached a deal with bankrupt Lehman Brothers Holdings Inc. regarding claims the two filed against each other. One aspect of the agreement was to have Ambac drop its claim for $6.1 billion against Lehman.

The news halved Ambac’s stock-market capitalization to $120 million.

“Demonizing debt restructuring is wrong,” said Greece’s deputy prime minster Theodoros Pangalos on Sunday.

“Debt exists to be restructured. [The Greek government] may pursue it ourselves or it may be proposed to us and it may too advantageous to turn it down.”

Writing in the Irish Independent this weekend – and looking ahead to when Dublin next tries to raise cash from bond investors – “If [the government] do too little to convince the markets [in the early Dec. budget statement], the game is up,” warns University College Dublin lecturer Colm McCarthy, “and the Irish Government will be unable to finance itself.

“That means an IMF/European bailout and economic policy dictated from outside the country.”

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 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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