Weakness in Gold "Non-Sustainable", China,
Investors and Central Banks "Happy to Buy on Dips"
from
Ben Traynor BullionVault
SPOT MARKET prices to buy gold rose back above $1705 an ounce during Tuesday morning's London
session, though it remained below where it started the week following falls
overnight, while stock markets also edged higher along with the Euro after
European leaders welcomed progress on Greece's debt buyback program.
Silver meantime fell to around $33.30 an ounce, still
above last week's low, as other commodity prices also dipped.
Earlier on Tuesday spot gold fell to $1700 an ounce,
its lowest level since the first week of November. Gold priced in Euros
meantime fell to its lowest level since mid-August this morning.
"Clearly the situation has eased with respect to
the Euro debt crisis, or market players are ignoring it," says a note from
Commerzbank.
"The dip in the price of gold was not accompanied
by weaker ETF demand," Commerzbank adds, noting that Bloomberg data show
gold exchange traded funds saw their holdings rise to a fresh record yesterday.
"We therefore view the current price weakness is
non-sustainable."
"The break [lower] probably will not last
long," agrees one trader in Sydney, speaking to newswire Reuters this
morning.
"Funds are happy to buy on dips, and so will the
central banks and the Chinese."
Self-directed individual investors are also taking
advantage of dips to add to their gold positions, according to the latest Gold Investor
Index data published Tuesday.
The Gold Investor Index, which measures investor
sentiment towards physical gold by tracking buying and selling activity on
online precious metals exchange BullionVault, rose to a six-month high of 56.5 last month, up from 56.0 in October,
with a reading above 50 indicating more net buyers than net sellers over the
month.
On the currency markets meantime the Euro rallied to a
seven-week high against the Dollar Tuesday morning, breaching $1.30.
Following their meeting on Monday Eurozone finance
ministers said they confident Greece's debt buyback program will be a success.
Last week's Eurogroup statement said single currency
finance ministers expected the prices Greece paid to buy back its bonds
"to be no higher than those at the close on Friday 23 November
2012".
Since the buyback announcement however Greek bond
prices have risen, and Athens yesterday revealed the maximum price it will pay
to be above that 23 November level.
Since the bond buyback announcement, the volume of
Greek bonds traded has "increased by the day", according to Citigroup
head of European government bond trading Zoeb Sachee.
"Hedge funds must have bought lower than
here."
"The official sector continues to demonstrate its
total misunderstanding of how markets operate," adds Julian Adams, chief
investment officer at Adelante Asset Management in London, whose firm holds
Greek debt.
"The whole saga has been a textbook case of how
not to do this sort of thing."
Finance ministers from the 17 Euro member nations also
formally agreed Spain's banking bailout. Back in June, a credit line of up to
€100 billion was agreed for Spain's government to finance the restructuring of
the country's banking sector.
The single currency's permanent bailout fund the
European Stability Mechanism has now authorized the first tranche of payments,
worth €39.5 billion.
The ESM was downgraded by ratings agency Moody's at the
end of last week, with its credit rating cut one notch from Aaa to Aa1,
following an earlier decision by Moody's to downgrade France.
Over in Washington meantime, in an open letter to President Obama, Republican House of Representatives speaker
John Boehner called yesterday for reforms to Medicare and Medicaid as part of a
package aimed at reducing federal spending over the next decade.
Boehner and several other Republicans also called for
an additional $800 billion to be raised in revenue, half the amount they say
Obama has asked for, as US political leaders continue to disagree over how to
address the federal deficit.
"[The Republicans'] plan includes nothing new and
provides no details on which deductions they would eliminate, which loopholes
they will close or which Medicare savings they would achieve," said White
House communications director Dan Pfeiffer in response to the open letter.
Failure to agree a deal would mean the US will
encounter the so-called fiscal cliff of tax rises and spending cuts currently
scheduled for the end of this month.
"Drawn-out talks that go down to the wire could
potentially hurt equities and drag gold prices down," says Ed Meir,
commodities analyst at INTL FCStone.
"However, one could make an equally convincing
case that were the talks to flounder amid general market mayhem, investors
could flock to gold as a safe haven."
Editor
of Gold News, the analysis and
investment research site from world-leading gold ownership service BullionVault, Ben Traynor was
formerly editor of the Fleet
Street Letter, the UK's longest-running investment letter. A
Cambridge economics graduate, he is a professional writer and editor with a
specialist interest in monetary economics. Ben writes and presents
BullionVault's weekly gold market summary on YouTube and can be found on
Google+
(c)
BullionVault 2012
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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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