Gold Demand "Remains Elevated" as Euro Sinks on French "Parity" Comments, Hungarian Banking Fears - 7 June 2010
The Euro made a new four-year low at the start of Asian trade, falling below $1.19 in response to French prime minister Villon saying he had "No concerns" about the Euro's 20% decline in 2010-to-date.
"I would only see good news in parity between the Euro and Dollar," Villon told a press conference on Friday.
The Gold Price in Euros today made a new all-time high at €33,000 per kilo.
Versus the Dollar, Silver Prices fell to the worst level since late March, falling 8% from last week's rally to trade below $17.25 an ounce.
Base metals also fell hard. Crude oil slipped back towards $71 per barrel.
"The flight to quality has continued overnight," says a note from Japanese metal conglomerate Mitsui's London office.
"Margin-call-related selling has been pressuring Gold recently, due to traders liquidating their long gold positions to raise cash," says a US options trader.
"The danger for gold right now is being caught up in the crossfire of other assets falling," agrees Edel Tully, analyst at UBS in London.
"[But] as long as financial-market participants are shedding risk, the fear trade should ensure that physical demand for bars and coins remains elevated."
Eurozone banks exposed to Hungary extended Friday's sharp losses early today.
Shares in OTP, Budapest's largest domestic bank, doubled Friday's 10% loss despite weekend press briefings from the new right-wing government's economy minister, downplaying comments from the prime minister's office about a "Greek-style" debt crisis after the previous administration "lied".
In what The Economist magazine calls the new government's "first serious piece of legislation", ethnic Hungarians in neighboring Slovakia, Romania and Croatia are to be offered Hungarian passports.
Slovak leader Robert Fico warned last week of a "brown plague" – referring to Hungary's Nazi past. The new Hungarian laws refer to a "united Hungarian nation [with] cohesion over state borders."
"There is a lot of demand especially from Germany; people are looking for gold," says South Africa's Rand Refinery treasurer, Debra Thomson, in an interview with Reuters.
Production of Gold Krugerrands, the world's most-heavily minted bullion coin, have risen by 50% to 30,000 ounces per week.
Western Australia's Perth Mint says it has doubled capacity in this last 18 months.
Inflows to exchange-traded Gold trust funds rose across the board last week, but overall betting on US Gold Futures and options fell back – shrinking more than 10% from the record levels of a fortnight earlier – as both "speculative" traders (such as hedge funds) as well as "commercial" players (including miners and refineries) grew their directional betting, but reduced their "spreading" positions.
Over the week-ending last Tuesday, the "net long" position – of bullish minus bearish bets now held by speculative traders as a group – ticked up by 1.8% to the equivalent of 938 tonnes, but remained more than 8% smaller than the record of 1021 tonnes hit last November.
"We have increased our gold exposure," said Ian Henderson of J.P.Morgan Asset Management at a conference hosted last week by ETFSecurities in London.
"Gold and precious metals exposure is currently around 39%" of the Global Natural Resources Fund, he's quoted by Reuters. "We have commensurately reduced our base metals and diversified mining exposure.
"We have of course reacted to what has been happening in Australia by reducing our positions somewhat there," Henderson added, referring to the proposed "windfall" tax on Australian mining profits.
The United States' second-largest public pension fund voted last Thursday to begin investing in commodities as a hedge against inflation.
California's State Teachers' Retirement System follows the No.1 public fund – CalPERS – into commodities, after reporting a 25% loss in its last full-year accounts.
"Traditionally pension funds shied away from gold and commodities," says Marcus Grubb, managing director of investment at trade-backed marketing group the World Gold Council.
Pension fund trustees had previously worried that gold doesn't produce an investment yield. But after nine straight years of rising prices, "This is beginning to change," he says.
Ten-year US Treasury bonds ticked lower this morning, pushing yields higher from last week's 12-month low beneath 3.20%.
Comparable UK gilts rose in price, however, nudging the yield offered to new buyers down to a new 7-month low of 3.51%.
The price of Gold for Sterling investors slipped more than 1.0% lower from an early rise, trading at £838 an ounce as Monday's afternoon session began in London.
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Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, Adrian Ash was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.