Gold Hit by “Exceptional Volatility” as Eurozone Risks “Failure of Europe”
By: Adrian Ash
Wednesday, 19 May 2010
London Gold Market Report
THE PRICE OF GOLD fell hard versus the surging US Dollar in Asia and London on Wednesday, falling to a 1-week low of $1202 an ounce as world stock markets and commodities also sank.
Banned by German regulators from making “naked” bets against Eurozone government debt, speculative pressure instead squashed the single currency to a new four-year low of $1.2150 late on Tuesday.
The Euro-price of gold leapt towards Monday’s all-time highs above €32,500 per kilo, before retreating almost 2.5% as the 16-nation currency rose rallied today.
“Widespread aversion to risk has failed to lend support to precious metals, all of which posted losses in overnight trade,” says Standard Bank’s London team in a note.
“This is most likely attributable to Dollar strength and investors taking profits after the recent rally, especially in the gold market.”
Unwinding all of last week’s 3.4% gain for Dollar investors today, the price of gold traded at $1208 an ounce as New York opened for business.
European shares ticked higher from an early 2.0% plunge, while US crude oil contracts fell towards $69 per barrel.
Silver prices also fell hard, dropping to a new 1-week low of $18.42 an ounce before bouncing with other industrial metals and commodities.
Major economy government bonds pushed higher except US Treasury debt, which slipped from Tuesday’s late surge, nudging 10-year yields up to 3.38%.
“Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the UK, in Japan, in the United States, if we keep on running very large fiscal deficits,” said Nouriel ‘Dr.Doom’ Roubini to an audience at the London School of Economics last night.
“The chances are, they are going to wake up in the United States in the next three years and say, ‘This is unsustainable’.”
Urging German politicians to approve the €750 billion “stabilization” package proposed a fortnight ago, “If the Euro fails, then Europe fails,” chancellor Angela Merkel said today.
“If we do not avert this danger, then the consequences for Europe are incalculable…The consequences beyond Europe are incalculable.”
Germany’s BaFin regulators said the short-selling ban was needed to curb “exceptional volatility”. Instead, it “suggests the drama in Europe continues to unfold and escalate,” according to $18 billion fund manager Keith Wirtz to Bloomberg overnight.
New data meantime showed US consumer price inflation ticking down to 2.2% year-on-year in April, just shy of analyst forecasts but taking the absolute cost of living back to its highest levels since the peak of summer 2008.
The real rate of interest, adjusting the Fed Funds rate for CPI annual inflation, held negative for the sixth month running in April, equal to minus 2% per annum.
Calling last month’s 19-year high in UK inflation “somewhat elevated”, the Bank of England’s executive committee was unanimous in keeping its base rate at a record low of 0.5% earlier this month, minutes from the meeting showed today.
Real UK interest rates now lag retail-price inflation by the widest margin since Dec. 1977 – back when the cost of living was rising by more than 12% per year – at minus 4.8%.