Gold Jumps on Euro Slump, "Spanish Flu" Banking Fears
Source: Adrian Ash, BullionVault (6/4/10)
British investors looking to buy gold at wholesale prices saw it cut this week's 2.3% drop in half.
New data showed U.S. payrolls rising by 431,000 in May—fewer than expected.
Some 400,000 of those jobs are temporary hires for the government Census.
Gold priced in Euros jumped 2.0% inside an hour, rising back above €32,100 per kilo.
British investors looking to buy gold at wholesale prices saw it cut this week's 2.3% drop in half, briefly touching £830 an ounce.
"Upside momentum is fading [but] we believe this will be temporary," says Walter de Wet at Standard Bank.
"We expect movements lower in gold to be bought. Investment demand remains healthy."
New York's SPDR Gold Trust—the world's single-largest gold ETF—yesterday added another 21 tons to the bullion it holds in trust at HSBC in London.
Ticker GLD, the trust fund has swelled by 1.7% already in June, adding more than 11% to its gold holdings from the start of May.
ETFSecurities Scott Thompson said Thursday that European investors accounted for the bulk of last month's $1 billion inflows to the ETF provider's commodity products.
"Trading volumes have risen to around $3 billion per week," he told a press briefing. "Gold alone accounts for around half of that figure."
BusinessWeek reports that gold coin sales to Europe from Australia's Perth Mint "surged in May", with Eurozone buyers accounting for 69% of orders, compared with 51% in April.
"As soon as it was announced the European Commission was bailing out Greece, the German population decided they'd better hedge their Euros by buying precioU.S. metals," said Ron Currie, sales and marketing director.
"We had stock before this blip in the market, then it all went," he added, confirming that the Perth Mint is currently working "flat out" to meet demand.
Asian Gold Trading "remained lacklustre" on Friday said one dealer, however, and London trade had been "deadly quiet" ahead of the U.S. jobs data, according to another.
Thursday's flat close in New York equities was repeated in Tokyo and Hong Kong. European shares fell on rumors of a risky derivatives position at French bank SocGen.
Crude oil stalled at Thursday's 1-week high. Zinc fell to its lowest level since July 2009.
Soft commodities rose, in contrast, pushing wheat and corn prices higher.
Cocoa hit a 21-year high according to Bloomberg data.
"We're seeing cut, cut, cut in all the countries simultaneously, which is what they did in 1931 and that caused the Great Depression," said European Trade Union Confederation head John Monks to the Associated Press today.
"[There's] quite a bit of social unrest in some countries," he warned after meeting with Europe's employer lobby and EU Commission president Jose Manual Barroso today—a meeting Monks said he'd called "out of despair and alarm at the prospects for growth" after all 27 European Union members announced new "austerity" budgets.
At the monetary level, the European Central Bank "is a long way from committing itself to full-scale quantitative easing," notes CLSA's Greed & Fear analyst Christopher Woods.
"Such a policy will only occur after a further collapse in stock markets and a further rise in credit spreads."
Woods advises investors bet on "Spanish Flu" and take positions against Spanish banks.
Fitch Ratings downgraded several Spanish institutions on Tuesday. The central bank in Madrid says that €166 billion of the €445bn in real-estate assets held by Spain's banking sector are "potentially troubled."
French bank BNP Paribas said Wednesday that a "bad bank"—if not "bank-by-bank stress-testing, with subsequent recapitalization"—could be necessary in Spain.
"Gold was pretty much on a one-way street [over the last month], and it is only natural that we see a bit of a correction," said Afshin Nabavi of MKS Finance in Geneva to Bloomberg earlier.
"In the medium to long term, this may be an opportunity to buy into dips."
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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—where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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