From Adrian Ash
But “Favored” by Rates & Liquidity as Silver Breaks $20/Oz
THE PRICE OF GOLD peaked within 0.4% of June’s all-time high for Dollar investors on Wednesday morning, before slipping $7 an ounce from $1262 at the start of Wall Street trading.
European stock markets rallied from an earlier drop, but Asian stock markets extended yesterday’s loss, holding the MSCI World Index one-third below its peak of autumn 2007.
Silver today recorded a London Fix of $20.02 an ounce – its highest since March 2008 – while crude oil held above $74 per barrel.
Gold bullion this morning hit its third-ever highest London Fix at $1258.
“Until either real interest rates start to rise or liquidity declines, we believe that gold’s investment case remains intact,” writes Walter de Wet at Standard Bank in his Commodities Focus today.
Measuring global liquidity as the US Federal Reserve’s balance-sheet plus global foreign reserves (excluding gold), “Gold’s relationship with liquidity is confirmed visually [in de Wet’s chart] as well as empirically…up 13% year-to-date as global liquidity is up 10%.”
Looking at the US Treasury bond market, “The current yield favors gold investment,” he adds, and “We expect the Fed to keep interest rates unchanged for most of 2011 and, thereafter, to hike rates slowly.”
G7 government bond yields ticked higher but remained below local rates of inflation on Wednesday, with prices slipping back on US, German, Japanese and UK debt.
National Bank of Greece announced a “cash call” on its shareholders late Tuesday, asking for €2.8 billion ($3.5bn) and sparking rumors that Athens may be about to impose a “haircut” on Greek government debt-holders, reducing its obligations.
“While NBG’s chief executive Apostolos Tamvakakis doesn’t think the Greek government will default, he doesn’t say anything about a restructuring,” reports the FT’s Alpha blog.
“NBG [already] carries its Greek government bond portfolio at a 10% discount in its books.”
Greek and French banks heavily exposed to Athens’ debt fell hard in early stock-market trade. Over in Lisbon, a new issue of Portuguese government debt saw strong demand for 10-year bonds, but only by offering an annual yield of 5.97% – sharply higher from the 4.17% accepted by bond investors in March.
US president Obama was today scheduled to announce a package of tax cuts and infrastructure spending – heavily trailed in the media this week – likely to cost $180 billion and already opposed by Republican politicians.
“People don’t own gold because they want to,” writes Peter Boockvar at Barry Ritholtz’s Big Picture website today. “They own it because they feel they have to. It’s called self defense.”
“The Federal Reserve, in my view, hadn’t seen [the global financial crisis] coming and in some ways, possibly contributed to it,” says Michael Burry, former head of the Scion Capital hedge fund, one of “an extremely small group of really exceptionally adroit” economic forecasters, and a major character in Michael Lewis’s current best-seller about the subprime collapse, The Big Short.
“Now Bernanke is the most powerful Fed chairman in history, but I’m not sure that’s the right response,” Bloomberg quotes Burry, who is adding gold investment to his farmland and technology holdings.
“The result tends to tell me they’re not getting it right.”
On the currency markets today, the US Dollar held steady against the Euro, but fell to new 15-year lows vs. the Japanese Yen below €83.30.
The British Pound jumped towards $1.55, driving the gold price in Sterling down 1.2% from Tuesday’s 10-week high of £822 an ounce.
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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