Gold Strong Currency for Private Investors as Swiss FX Intervention Costs $870m Per Day
Commodities / Gold and Silver 2010 May 21, 2010 - 07:30 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD bounced from a new two-week low in London today, nearing the weekend 4.3% below last Friday's close as world stock markets slumped for the fourth time in seven sessions.
Government bond buying continued to push prices higher, knocking the yield offered by US, German and UK debt to new multi-month lows.
US crude oil contracts meantimee slipped back below $70 per barrel, more than 20% below May's 18-month peak.
"Investors are looking for a strong reserve currency," writes Filippo Finocchi at bullion dealers Italpreziosi in Arezzo, Italy.
"Purchasing protection in the form of gold appears well advised," says economist Charlie Fell, writing in The Irish Times.
"The 'bailout age' could well give way to either malign inflation or destructive deflation. A return to price stability cannot be assured."
On the data front today, the Swiss National Bank reporting buying almost CHF1 billion ($870m) of foreign currencies per day in April, selling Francs to try and depress it in the open market.
"The Swiss are in danger of selling out their remaining economic and monetary independence," says Sean Corrigan at Diapason Commodities in Lausanne, "to buffer their admittedly important exporters from the malfeasance of their neighbors' governments."
Following Wednesday's rumored €9.5bn purchase by the SNB, dealing-room chit-chat in London continued to whisper about "covert intervention" by the European Central Bank today.
"There isn't any evidence so far," says Beat Siegenthaler, strategist at UBS.
US Treasury secretary Tim Geithner will visit the UK and Germany next week "to discuss the measures being taken to restore global confidence and financial stability."
The UK meantime reported zero money-supply growth for last month, together with the largest-ever April deficit on government spending, some £10 billion.
New figures yesterday showed US unemployment claims rising sharply.
Tokyo's Nikkei stock index today finished the week 6.5% lower, falling through 10,000 for the first time since Feb.
"Gold's correlation with the Dollar has turned highly positive [and] with stocks deeply negative," notes Phil Smith at Reuters Technical in Beijing. "This raises a question mark over the sustainability of the [recent] upturn."
"Gold price action remains under pressure," agrees a technical note from Barclays Capital, "falling to two-month trendline support at $1175.
"With daily momentum rolling bearish, the downside bias remains."
In the retail investment market, in contrast, heavy European buying continued as prices slipped on Friday.
By lunchtime in Frankfurt, "Not available" showed against 216 of the 236 gold or Silver Investment products listed by one major German retail dealer.
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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