Europeans Storing Gold in Switzerland On Concerns About Inflation and Systemic Risk

Today’s AM fix was USD 1,569.50, EUR 1,248.01, and GBP 1,006.09 per ounce.
Yesterday’s AM fix was USD 1,567.75, EUR 1,261.47, and GBP 1,008.98 per ounce.

Silver is trading at $27.26/oz, €21.25/oz and £17.54/oz. Platinum is trading at $1,420.25/oz, palladium at $576.20/oz and rhodium at $1,190/oz.

Gold fell $17.70 or 1.12% in New York yesterday and closed at $1,557.00/oz. Gold climbed over 1% overnight in Asia and maintained those gains in European trading.


Cross Currency Table – (Bloomberg)

Gold rose after European leaders agreed a “deal” which has helped bring down soaring borrowing costs in Italy and Spain.

Stock and commodity markets have greeted the news with enthusiasm and seen strong gains. Peripheral Euro nations bonds have seen gains in a relief rally and their yields fallen although Italian bond yields remain over 6%.

German bonds fell quite sharply and yields rose with the German 10 year rising from 1.51% to 1.62%. UK and US bonds were also sold with a consequent rise in yields.

While the move helped ease fears over the region’s debt crisis, large structural issues remain unaddressed and much of the debt remains  still there and there may even be more of it post this ‘deal’ (see Dr Gurdgiev of GoldCore’s Investment Committees analysis in Commentary below). 

For the month of June, gold is 0.6% higher in dollar terms, 0.7% higher in sterling terms and 1.1% higher in euro terms.

While, gold is on track to post its worst quarter since 2004 (down 5.7% in dollar terms), year to date gold is up 0.35% in dollar terms, 3.3% in euro terms and only down 0.1% in sterling terms (see performance table).

Thus, despite its correction and ongoing consolidation, gold has again outperformed most currencies and indeed many assets.

Stocks are mixed year to date with the S&P 500 and DAX both up nearly 6% while the FTSE is 0.3% lower and the CAC in France is down 1.5%. 

Europeans trying to protect their wealth from global economic uncertainty have been stashing bank cash and gold bullion coins and bars in safety deposit boxes and depositories in Switzerland.

The euro zone debt crisis and fear that ultra loose monetary policy by central banks will stoke inflation have sent investors in search of extra security according to Reuters. 

With central banks around the world flooding markets with liquidity, some people fear spiralling inflation. People are turning to assets that will keep their value if prices rise.

“So much money has been pumped into the system that people are worried about inflation down the road,” said Bruno S. Frey, professor of economics at the University of Zurich. “You counter that by buying real assets of material value.”

Gold is an increasingly attractive option. 

An Italian businessman was recently caught trying to smuggle gold bars into Switzerland under his car seat. 

Further evidence of rising interest in gold is seen in the fact that due to the increased flow of gold bullion into Switzerland, the respected depository, Via Mat International is currently adding capacity in their storage facility in Zurich airport.

Private-banking clients in Switzerland and Austria are holding wealth in less risky assets as confidence in the financial system and the ability of advisers to secure investment returns remains low, according to a study by LGT Group and Johannes Kepler University which was reported on by Bloomberg.

“The majority of private-banking clients remain risk-averse,” Vaduz, Liechtenstein-based bank LGT Group and Linz, Austria-based Kepler University said in a joint report. “The high level of risk awareness and loss of confidence are reflected in the high cash share of portfolios.”

In Switzerland, 77 percent of investors described themselves as “risk averse” or “risk neutral,” compared with 78 percent in Austria. 

More than half of those surveyed said confidence in the financial system had been “severely dented,” while 22 percent expect the euro region to “collapse,” a scenario that prompted Austrians in particular to ditch their home-currency holdings in favor of Swiss francs and some are also turning to gold bullion.

European clients including German, Austrian and Swiss clients have definitely been adding to allocations in recent weeks as the debt crisis contagion risk rose again.

There remains a preference for allocated accounts in Zurich but allocated accounts in Perth, Singapore and Hong Kong have seen increased interest.

OTHER NEWS
(Bloomberg) — Morgan Stanley Recommends Gold, Copper on Outlook for Demand
Morgan Stanley backed gold, copper and iron ore on expectations that demand will increase while supplies are constrained even as it cut forecasts for the metals after prices fell on concern that global growth is slowing.

“The gold bull market is not over,” analysts Peter Richardson and Joel Crane wrote in a report today. The bank reduced gold estimates by as much as 16 percent to 2014, saying bullion may average $1,677 an ounce this year compared with the previous estimate of $1,825.

(Bloomberg) — Gold Traders Extend Bullish Streak on Debt Crisis: Commodities
Gold traders are bullish for a sixth week on speculation that Europe’s debt crisis will boost demand from investors seeking to protect their wealth and drive prices higher after the biggest quarterly slump in eight years.

Sixteen analysts surveyed by Bloomberg said they expect a rally next week and 10 were bearish. Another five were neutral. Investors added about $1.9 billion to holdings in gold-backed exchange-traded products this month, the most since November, according to data compiled by Bloomberg. Hedge funds and other speculators have increased bets on a rally for four consecutive weeks, U.S. Commodity Futures Trading Commission data show.

Spain formally asked for a bailout for its banks on June 25 and Cyprus that day became the fifth member of the 17-nation euro zone to ask for outside help. European leaders agreed today to ease repayment rules for emergency loans to Spanish banks and relax conditions on potential help for Italy. Gold fell to within 1 percentage point of a bear market in May as some investors sold bullion to cover losses in stock markets as $7 trillion was erased from global equities in about two months.

“While demand has been weaker for bullion in recent months, it has picked up in the last month,” said Mark O’Byrne, the executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars. “A resolution to the crisis is not going to be seen in the short term. A lot more speculators could pile back into the market.”

(Bloomberg) — Commodity ‘Supercycle’ Has Not Ended, David Hightower Says
The commodity “supercycle” is not over because consumer demand for food and energy won’t ebb, said David Hightower, the president of the Hightower Report in Chicago.

“The talk of the commodity supercycle being ended is just utter nonsense,” Hightower said today in a presentation at the INTL FCStone Outlook Conference in Chicago. “The downside potential in most physical-commodity prices has already run almost to the end of its train track.”

NEWS
Gold Analysts Extend Bullish Streak As Debt Crisis Deepens – Bloomberg

Gold rises on EU pledge; eyes worst quarter in 8 yrs‎ – Reuters

Gold, silver rally after EU bank plan – MarketWatch

COMMENTARY
Gurdgiev: The ‘Deal’ – Preliminary Reaction – True Economics

Full EU Summit Statement (In All Its Conditional Wishy-Washy Glory) – Zero Hedge

Doug Casey on the Coming Eurocrash – Casey Research

Zombie Bank Apocalypse – Keiser Report

Hathaway: Gold "Always Invited Back Into The System…. – King World News


Stephen Flood

Stephen Flood is the CEO of GoldCore. He is a former Wall Street equity trader and FinTech expert. He has been involved in the precious metals markets since 2004 and has appeared as an expert contributor on CNBC, CNN, BBC, RTE & Bloomberg TV and has had articles published in the Irish Times, Irish Independent and The Sunday Business Post.

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