Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold and Silver Firm Despite Rising Dollar as Greek Debt Contagion Spreads

Commodities / Gold and Silver 2010 Apr 27, 2010 - 07:39 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleTHE PRICE OF GOLD slipped below $1150 an ounce on Tuesday morning in London's wholesale market, dropping 0.3% from Monday's finish as the US Dollar rose and world stock markets fell once again.

"Contagion" fears over Greek government debt continued "spreading quite rapidly to Portugal, Spain, Ireland and Italy," said one credit strategist.


"This is a consolidation of Europe's walls, the walls of the Euro," complained Italy's foreign minister, Franco Frattini of Germany's stance.

"It's a rescue for all of us."

Gold priced in Euros held in a tight range around €27,800 per kilo – early April's then-record high, which was broken on Monday.

Two-year Greek bond yields rose to 14% this morning, pushing further above "high risk" government debt such as Pakistan's and offering well over 4.5 times' comparable German debt.

US, Japanese, German and UK government all bonds rose, in contrast, pushing 10-year yields down towards 1-month lows.

Asian stock markets fell for the third session in four. Crude oil dropped through $84 per barrel.

"With the financial terms currently on offer," reckons Citigroup's chief economist – former Bank of England policymaker Willem Buiter – a significant haircut for creditors or even a formal default become more likely."

Greek bondholders will likely be forced to accept much longer time-to-maturity, plus a 20% or "worst-case scenario" 30% drop in value, Buiter is quoted by Bloomberg.

"Greece is not an isolated case of budgetary indiscipline and deteriorating competitiveness," writes Standard Bank's chief currency strategist Steve Barrow today.

"Instead, there’s been a symmetric shock – the global credit crunch – which has hit budgets hard throughout the Eurozone...This is likely to drag down other Eurozone economies, other Eurozone bond markets, and the Euro."

"Precious metals are still clinging tenaciously to the heights they recently attained," writes Sean Corrigan at Diapason Commodities in Lausanne, Switzerland, "no more than buffeted, so far, by the stronger US Dollar."

Pointing to a marked deceleration in global money-supply growth – and noting the strong link between money growth and raw-material commodity prices – "All indications are that there is still some headroom in [the gold and silver] corner of the market," Corrigan writes, "especially since – for gold at least – extra liquidity inflates prices, while reduced liquidity enhances the insurance premium."

Gold prices trebled during the global "Reflation Rally" peaking in late 2007. They then rose by one-fifth against the Dollar as world stock markets dropped 60% of their value to March 2009.

"[European central banks] have little appetite for selling gold," notes marketing-group the World Gold Council in its latest central-bank gold reserve update.

Since 27th Sept. last year – when Western Europe's central banks renewed a 5-year deal to cap their joint gold sales, reducing the ceiling to 400 tonnes per year – total only 7.2 tonnes, the vast bulk of it from the International Monetary Fund.

"This leaves the IMF with 185.7 tonnes to be sold in a phased and transparent manner within the ceiling set by the CBGA," says the World Gold Council, "so as to avoid any disruption to the gold market."

Meantime on Tuesday, the British Pound fell sharply against the Dollar as UK mortgage approvals and wholesale trading activity both came in much weaker than expected in new data releases.

London's FTSE100 share index followed a 1.5% drop in mainland European stocks. Gold priced in Sterling recorded its best London Fix in two weeks above £750 an ounce.

Over in the US – where the Federal Reserve began its two-day monetary policy meeting – "The 'extended period' language about rates is likely to stay until later this year," reckons Swiss Re's chief economist Kurt Karl in New York, speaking to Money magazine.

"We're waiting for them to talk about the recovery being self-sustaining," agrees another chief economist, also speaking to Money magazine.

Last month saw Kansas City Fed president Thomas Hoenig vote against keeping the "extended period" phrase for a second time, warning other policy-makers that such language risks "the buildup of financial imbalances" by encouraging the idea that low rates will support asset prices indefinitely.

Hoenig supported keeping short-term Dollar rates at zero, however. Consumer-price inflation in the United States was last pegged at 2.3% per year.

Kind regards,

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.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in