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Asian Gold Traders Buy the Dips as Global Devaluation Makes Currency Crisis Possible

Commodities / Gold and Silver 2010 Mar 26, 2010 - 09:37 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleTHE PRICE OF GOLD rose in Asia and London on Friday morning, briefly touching $1100 per ounce before slipping back with the Euro after European political leaders agreed a rescue strategy for Greece in Brussels.

"I think we might get a little bit of a recovery in the Euro, which will help gold prices," said Darren Heathcote at Investec Australia to Reuters earlier.


Gold and the Euro typically move together vs. the Dollar, becoming more closely correlated than gold and silver on 15 separate occasions in the last five years.

Silver also cut its early gains as the New York opening drew near today, slipping back from $17.00 to $16.81 an ounce.

"We've seen physical [gold] buybacks in the market," said refinery group Heraeus' Hong Kong manager Dick Poon overnight, "and not only in Hong Kong."

"Physical traders were happy to buy the dips."

Commodity prices also ticked higher early Friday, pushing US crude oil contracts north of $81 per barrel.

European stock markets fell, however, while German Bunds eased further and Greek bonds rose.

Athens will now get emergency funds of some €23bn – two-thirds paid by other Eurozone members, and one-third by the Washington-based International Monetary Fund – if Greece fails to fund its €54bn public debt on the bond market.

"I cannot imagine [German] judges would step in" to block the IMF's involvement as breaching EU rules, reckons Professor Ulrich Haede at the University of Frankfurt, speaking to BusinessWeek.

European leaders also agreed overnight to give what the British press calls "sweeping powers" to unelected European president Hermann von Rompuy – the Western world's highest paid political leader, on €1000 per day.

The powers "to strengthen the coordination and surveillance of budgetary discipline [and] to set out economic policy guidelines" simply invoke existing clauses in the Lisbon Treaty signed in 2007, however.

Looking at Eurozone monetary policy, "Economic weakness and low inflation, in conjunction with the debt strains, will – at a minimum – leave the ECB on hold all year," says Steven Barrow, chief currency strategist at Standard Bank, today.

"Even if rates are not cut, we still feel that the ECB's policy does the Euro few favors, as it has shown that it is prepared to deviate slightly from its mandated monetary policy course, in order to offer its backing for Greece."

"The underlying problems of heavily indebted economies are [still] weighing heavily on the single currency," says Andrey Kryuchenkov at VTB Capital in London.

"The Euro will still suffer and could still drag gold a tad lower."

However, "The measures that were taken to bail-out countries from the financial crisis led to a fiscal crisis, and a currency crisis can possibly erupt," says Avinash Persaud, professor emeritus at London's Gresham College, and an expert advisor to the UK, France, IMF, OECD and United Nations.

"The US and the UK have no other option other than having weak currencies," he tells the Press Trust of India in an interview.

"In fact, the US has a Dollar de-valuation policy."

"The economy continues to require the support of accommodative monetary policies," repeated Fed chairman Ben Bernanke in Congressional testimony on Thursday.

"I keep expecting a normalization, but the market is convinced the Fed is not going to do it," says Bianco Research strategist Howard Simons in Chicago to Fortune magazine.

Slightly better than tossing a coin with a 57% strike rate, Bloomberg's latest survey of professional traders, analysts and investors says 10-out-of-20 now expect gold prices to fall next week.

"Six forecast higher prices and four were neutral," says the newswire.

From a technical standpoint, Dollar gold prices "are still below the long-term up-trendline (starting Oct. 2008) which has been broken in the past few days," writes Filippo Finocchi from the trading desk at Italian bullion suppliers Italpreziosi in Arezzo.

"If gold continues its run higher, the trendline could be firm resistance."

Adrian Ash

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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