Gold Nears €1,300/oz – Euro Lower After EU Downgrades and Greece Jitters

Gold’s London AM fix this morning was USD 1,643.50, GBP 1,074.60, and EUR 1,298.90 per ounce.

Friday’s AM fix was USD 1,642.00, GBP 1,070.27, and EUR 1,281.71 per ounce.

Spot gold is again above the 200 day moving average near $1,638/oz. Gold prices have rallied 5% so far in 2012, with the eurozone debt crisis and the growing tension between Iran and the west supporting gold’s safe haven status.


Cross Currency Table – Bloomberg

Although gold had its largest drop in the last 2 weeks on Friday, (-1.6%), it was 1.3% higher on the week and trading higher this morning.  Many analysts feel that current sovereign, macroeconomic and geopolitical risks are not reflected in gold’s price.

Friday’s news of France’s loss of its AAA rating has put the European Financial Stability Facility (EFSF) at risk. The Eurozone economy resembles a large ship sailing in rough seas since France fund’s 20% of the EFSF fund and 8 other members were also downgraded.


Gold XAU-USD Rate – G14 Daily – Bloomberg

This will almost certainly lead to the EFSF’s downgrade which would result in the fund too paying more to borrow as credit costs rise.  There are icebergs lurking in increasingly murky Eurozone waters. The European downgrades were long expected and may have been priced in the markets. The risk of a non orderly Greek default and of contagion in the Eurozone remains and is not priced into markets. It would lead to the euro falling sharply against other fiat currencies and particularly against gold.


XAU-EUR Rate G14 Daily – Bloomberg

Gold has risen 7.4% in euro terms in the first two weeks of the year.  Gold at €1,298/oz today is less than 4.7% from its record high in euros of €1,359/oz (09/09/11).  Given the scale of the crisis, new record highs in euro terms could be seen in the near future.

The situation with Iran is also likely to support gold prices. Crude oil prices remain near recent highs due to concerns over supply disruptions – after Iran warned Arab countries of consequences if they raised oil output to replace Iranian production facing international sanctions.

Gold jewellery demand in India has risen from 5 to 7 % in 2011, and is projected to grow another  10 to 15 percent this year said the head of India’s largest jewellery retailer confirmed on Sunday. 

UBS saw an increase in physical gold demand last Friday to the highest so far in 2012 confirming that India is a buyer at these levels although Reuters report that demand was more lack lustre in India overnight.

This strongly suggests that demand in India is more robust and less sensitive to higher prices than the bears have claimed. The Indian sub continent continues to buy the dip.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS
(Reuters)
Gold steady after S&P downgrades; dollar pressures

(MarketWatch)
Gold futures gain in Asian trading

(Reuters)
Indian gold jewellery demand seen up 10-15 pct in 2012

COMMENTARY
(The Telegraph)
The French downgrade should be a warning about hidden UK liabilities

(CNBC)
Faber: US Should be BBB or Junk … Hold Gold

(Mineweb)
Rapid rise to $10,000 gold ‘strains credibility’

(ZeroHedge)
How Safe Are Central Banks? UBS Worries The Eurozone Is Different

(ZeroHedge)
Overnight Long/Intraday Short Gold Fund More Than Doubles In Just Over A Year: Generates 43% Annualized Return

(The NY Sun)
Secrets of the Fed

 

Mark O'Byrne

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