Gold Traders "Torn" as Ireland

From Adrian Ash

BullionVault

Takes Bail-Out But Euro Falls, Futures Positions “Enormous”

THE PRICE OF GOLD closely tracked the Euro currency on Monday morning, initially rising after Ireland agreed a €90 billion rescue package from its European partners and the International Monetary Fund, but slipping back after Dublin coalition members the Green Party then called for a general election in January.

Finance minister Brian Lenihan dubbed the call “the height of irresponsibility”, and the gold price in Dollars edged down to last week’s finish at $1354 per ounce as the single currency lost more than 1¢ from an early one-week high.

The silver price in Dollars also retreated from an early rally, trading back at Friday’s record-high weekly close of $27.36 per ounce.

“We are torn regarding gold’s near-term direction,” says the latest note from Switzerland’s MKS Finance team.

“A deeper correction shouldn’t be ruled out, [but] ongoing uncertainty created by Eurozone debt issues and another round of quantitative easing in the US are expected to continue to attract buyers to the perceived safe-haven asset.”

Delays to cash aid for Athens, sparked by its failure to reduce spending, mean that “parts” of the Greek government may be forced to “shut down” from next week, according to a US economics consultancy today.

Portugal’s socialist government said today that its banking sector is “resilient and well capitalised”, and the state has a “clear strategy” for cutting its deficit.

“Most traders were torn [overnight in Asia on Monday] between Ireland’s rescue deal and China’s move to tighten its economy,” says a Hong Kong dealer.

That meant Asian players “were unsure and chose not to trade aggressively.”

Following the Greek rescue agreed in June, both the EU and IMF said today they were “satisfied” with Dublin’s new 4-year debt reduction plan, due to be revealed to the Irish public in next month’s Budget.

Although outside the single-currency Eurozone, the UK today offered Dublin some £7 billion (€8.1bn, $11.2bn). British institutions hold one-fifth of Ireland’s public and banking debt, according to Reuters’ data.

Luxembourg’s prime minister Jean Claude Juncker said there will “in no way” be any debt restructuring – forcing losses onto bondholders – before 2013.

Finance chief Lenihan meantime told reporters today that France and Germany have dropped demands that Ireland raise its ultra-low corporation tax, saying that “We are a sovereign state”.

Dollar-Gold’s daily correlation with the Euro currency – typically strong and positive since the Euro project began in 2000 – turned above zero for the first time in 6 sessions on Friday.

Over on the US gold futures and options market, latest data – released late Friday – showed a 5% fall in the total number of open contracts in the week-ending last Tuesday.

Total open interest remained historically high, however, recording its second-largest number ever.

Within the gold futures and options data, the “net long” position held by speculative, non-industry players fell by more than 8% to a three-month low equivalent to 895 tonnes of metal.

On the other side of the trade, the “net short” (of bullish minus bearish bets) held by commercial, gold-industry players also shrank to a 13-week low, falling by almost 12% from late September’s near-record level.

“You have enormous open interest in the December gold, silver and palladium Comex and Nymex futures contracts,” said the CPM consultancy group’s Jeffrey Christian to South Africa’s MineWeb on Friday last week.

“[This] suggests that there could be a very volatile upward move in metal prices, followed by very volatile sell-off after they make new highs.”

Further ahead, “We’re seeing a cyclical peak in the fourth quarter of this year [or] first quarter of next year, and then gold prices will move sideways or somewhat lower,” Christian believes.

“How low it goes will depend partly on how high it goes between now and then, but we won’t be surprised to see the gold price fall back to $1200 or maybe even lower in the middle part of 2011, and then start to rise again.”

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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