Pounds Falls on UK Trade Deficit, QE2 and Economic Recovery Concerns – Gold Rises to £816/oz

Gold

Gold is flat in dollars but higher in euros, Swiss francs and particularly British pounds this morning (see Cross Currency Table). Jitters about European sovereign debt markets is keeping gold above $1,250/oz  and near record highs of $1,265/oz. The complacency of recent weeks is giving way to the gradual realisation that the worst may not be over yet, in terms of the global financial crisis and this could lead to a challenge of $1,300/oz in the short term rather than the long term.

Sterling has fallen sharply against all currencies on concerns of an uneven economic recovery and the trade deficit widening to a record in July as imports surged (particularly of oil). The goods trade gap widened to 8.7 billion pounds ($13.4). The Bank of England is considering a second wave of bond purchases as the UK housing market and economic recovery is wavering. Gold in sterling is 5% below its record high of £857.22/oz seen in June (07/06/10 – see chart) and should UK economic conditions deteriorate again, which seems likely, then this nominal record high will be challenged.

Gold is currently trading at $1,255.10/oz, €987.33/oz, £814.95/oz.

Gold in Sterling – 1 Day (Tick). Click on image to view full size

Gold in Sterling – 1 Year (Daily). Click on image to view full size

The ECB has been engaged in its largest-scale bond purchase since July, having picked up €100m to €300m dollars worth of Greek, Irish and Portuguese debt this week according to reports. With EU nations borrowing requirements set to test financial markets in the coming months, concerns regarding possible sovereign defaults are leading further quantitative easing on behalf of the ECB – the medium and long term effects of this on the value of the euro remain unknown. Today Ireland is testing the bond market selling €1.5bn of four-year and 10-year bonds.

Markets are also concerns that the problems in the eurozone financial system are not confined to the periphery countries (primarily Greece, Portugal and Ireland) and there are also concerns about German banks. The bund climbed for the third day this week after FT Deutschland cited ECB chief economist Juergen Stark as saying some German banks are undercapitalized. Germany’s 10 biggest lenders, including Deutsche Bank AG and Commerzbank AG, may need about 105 billion euros ($135 billion) in fresh capital because of new regulation, the Association of German Banks has said.

Cross Currency Rates at 1000 GMT. Click on image to view full size

Silver

Silver’s support is at $19.33/oz and resistance at $20.00/oz.

Silver is currently trading at $19.94/oz, €15.69/oz and £12.95/oz.

Platinum Group Metals

Platinum’s support is at $1,500/z and resistance at $1,565/oz, 14-day.

Platinum is trading at $1,550.00/oz, palladium is at $520/oz and rhodium is at $2,050/oz.

Mark OByrne

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