Gold Will Advance to $2,500 If Euro Zone Breaks Up – Capital Economics

Gold’s London AM fix this morning was USD 1,733.00, EUR 1,304.77, and GBP 1,094.20 per ounce.

Yesterday’s AM fix was USD 1,743.00, EUR 1,315.17, and GBP 1,095.95 per ounce.


Cross Currency Table – Bloomberg

Gold tested yesterday’s lows near $1,725/oz in early trading in Asia prior to ticking higher to $1,740 towards the end of the trading day with surprisingly strong inflation figures from China helping. 

Gold corrected to $1,730/oz as markets in Europe opened and has traded in a range between $1,730/oz and $1,740/oz since. 

It is believed that Greek political leaders are still holding out with regard to pension cuts.  Market participants are again looking for some closure today.  Failure could lead to a sharp bout of risk aversion.

A resolution will boost the euro against the dollar and gold short term but with Greece remaining fundamentally insolvent the latest exercise in ‘kicking the eurozone can down the road’ will not restore confidence in the euro in the long term.


Gold Spot $/oz 3 Days  (Bloomberg) 

The European central bank has a rate decision out today at 12.45 GMT and interest rates are expected to remain at record lows, near 0%, supporting gold.

Bank of England Governor Mervyn King looks set to engage in more QE by injecting another  50 billion pounds, nearly $80 billion, into the U.K. economy today as he ramps up protection for a nascent recovery from the threat posed by Europe’s debt crisis.

More QE by the BOE and loose monetary policy by the ECB is gold bullish.

China’s annual inflation rate (CPI Index) accelerated to 4.5% in January, surprising market expectations and breaking a five-month trend of easing price pressures.  Consumers hitting the shops hard spending during the Chinese Lunar New Year holiday break may have contributed to the inflation.

The inflation jump in the world’s second-largest bullion consumer, China, should lead to continuing demand for bullion there.

“Gold will rise to $2,500/oz and commodities will plummet if the euro area starts to break up, “said Capital Economics yesterday.

“Greece may leave the system this year, followed by Portugal and Ireland in 2013, "Julian Jessop, chief global economist at the macroeconomic consultancy, told a conference in London on Wednesday.

A drop in commodity prices could be "pretty bad" if the Eurozone breaks up, while smaller than the 2008 collapse.

Gold and silver will rise, he said. "It’s almost certainly bad for all commodities, excluding gold and perhaps silver as a safe haven," Jessop said.

European Central Bank governing council member Ewald Nowotny said last month he "can’t be sure" Greece will be able to stay in the single currency, while some economists including Nouriel Roubini have said that the country may leave the euro within a year. 

Greece, facing a 14.5 billion-euro ($19.2 billion) bond payment on March 20, is struggling to arrange financing to avert a collapse of the economy, risking a new round of contagion in the euro area.

In the longer term, the breakup of the euro could be "very positive" for the global economy and commodity prices, Jessop said, as peripheral countries and Germany would have greater freedom to set their economic policies.

OTHER NEWS
(Bloomberg) — South African Gold Output Fell 8.2% in December From Year Ago
South African gold production fell 8.2 percent in December from a year earlier, Statistics South Africa, said by phone from Pretoria today. 

(Bloomberg) — South Africa Mine Output Rose 0.9% in December From Year Earlier
South African mine production rose 0.9 percent in December from a year earlier, Statistics South Africa, said by phone from Pretoria today.

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

SILVER 
Silver is trading at $33.83/oz, €25.50/oz and £21.36/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,654.00/oz, palladium at $705/oz and rhodium at $1,400/oz. 

NEWS
(Reuters)
Gold edges up on Greek hopes, China inflation‎

(WallStreetJournal)
Gold Choppy In Asia; Range Trade Seen Ahead Of Greek Deal

(Bloomberg)
Greece Talks Stall as Venizelos Heads to Brussels

(Bloomberg)
U.S. Faces Downgrade If No Plan: Chambers

(MarketWatch)
Bank of England expected to expand QE program

COMMENTARY
(Credit Suisse)
Credit Suisse: Global Returns Handbook 2012

(Max Keiser)
Keiser Report: It’s All Legal, Folks

(Wall Street Journal)
Valentine’s Day Gold Rush Is Still Within Reach

(Bloomberg)
Gold, Thermal Coal Favored Over Copper by UBS

(GoldSeek)
Why Our Currency Will Fail

(Forbes)
No Volcker To Squash Gold Bugs This Time Around

(ZeroHedge)
Michael Pento On Gold, Inflation, and Interest Rates

 

 

Mark O'Byrne

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