Gold Neutral Pending Greece Rescue
Commodities / Gold and Silver 2010 Feb 11, 2010 - 08:39 AM GMTBy: Adrian_Ash
THE PRICE OF WHOLESALE gold bullion held in its tightest range for more than three months in Asia and London on Thursday, treading water as currency traders awaited details of a European rescue deal for Greece.
"There is an agreement on the Greek situation," announced the European Union's unelected president Herman van Rompuy to reporters today.
Apparently led by German chancellor Merkel, the as-yet-unstated deal was brokered with European Commission chief Barroso, French president Sarkozy, Greek premier Papandreou, and European Central Bank chief Jean-Claude Trichet.
"It could be voluntary loans from member states. That seems to be the best option," said Polish prime minister Donald Tusk earlier.
Alternatively, the scheme could keep the cost of rescuing Greece away from sovereign balance-sheets – for the time being, at least – by combining "lending by private banks with a guarantee to be provided by Eurozone members," according to a statement from other EU politicians.
"Short-term developments are neutral for gold," says the latest technical analysis from bullion bank Scotia Mocatta.
Looking at resistance if gold prices rise, "Bears will be focused on $1114, where the December downtrend holds today...corresponding to the metal's 50-day moving average."
Gold priced in Dollars sat tight around $1076 an ounce throughout Asian and London dealing on Thursday, while German and French shares erased early gains as the Euro currency failed to break above $1.3800 for the third time in 3 days.
The gold price in Euros held above €784 an ounce.
"The correlation between the Dollar and gold remains firmly in positive territory," says Barclays analyst Suki Cooper. "Currency movements are likely to lead the gold price trajectory in forthcoming sessions."
Over the last two weeks, gold's correlation with the Euro/Dollar exchange rate has remained strong and positive, rising from its 10-year average of +0.52 to +0.88.
That correlation would stand at +1.00 if gold and the Euro moved perfectly in lockstep vs. the Dollar.
However, and as gold's correlation with silver has also risen – up from the average +0.89 to +0.92 – gold's closest connection has switched to equities.
By Wednesday's New York close, the S&P500 index of US stocks showed a one-month correlation with the daily change in Dollar gold prices of +0.95.
That compares with a 20-year average of almost precisely zero.
Over in Shanghai this morning, "Gold dealing was at a low volume ahead of next week's long [Chinese] holiday," says one broker's note.
"Silver strengthened on the back of robust copper prices in a relatively thin trading."
Silver prices today ticked up to $15.35 an ounce, gaining 4.5% from last week's five-month low.
Copper rose almost 2% in London dealing. US crude oil contracts pushed back above $75 per barrel.
"We focus on risk appetite, using the VIX index, which measures the implied volatility of US equities," says Walter de Wet at Standard Bank today.
"The VIX index is often used as [an inverted] proxy for risk appetite, and it has risen sharply in recent days. Spikes in the VIX index are quiet frequent, but the decline in the VIX index following spikes also occurs fairly rapidly.
"Should the index decline after its recent Greece-related activity, we would look for commodity prices to push higher."
European finance ministers, already due to meet next Tuesday, will receive full details of the Greek rescue by then, according to a Spanish official.
Servicing the public debt will cost Greece more than 11% of its gross domestic product this year, says The Independent newspaper. Civil service unions yesterday led another series of street marches, with further strikes booked for Feb. 24th, in protest at the government's tax hikes and public-sector cuts.
By Adrian Ash
BullionVault.com
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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
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