Gold Falls 2% in Minutes in Asian Trade – Global Currency Wars Resume and Markets Digest German Decision

7 September 2011 GoldCore


Gold is trading at USD 1,843.60, EUR 1,314.10 , GBP 1,155.30, CHF 1,584.10 and JPY 142,390 per ounce.  Gold closed marginally lower in all currencies yesterday except for the Swiss franc which fell nearly 7% against gold and other fiat currencies.

Gold’s London AM fix this morning was USD 1,844.00, EUR 1,311.99, GBP 1,153.44 per ounce. Gold fixed lower in all currencies (USD 1,891.00, EUR 1,330.75, GBP 1,172.86 per ounce).


Cross Currency Table

The German constitutional court rejected the challenge against the Eurozone ‘bail outs’ but said that the ruling shouldn’t be seen as “blanket” approval for future bail outs. Going forward Angela Merkel and the German government must seek approval from the Parliament’s budget committee for new guarantees it assumes under the European Financial Stability Facility. 

Gold closed in New York at $1,870.70/oz yesterday and then traded sideways prior to sharp selling in Asian trading saw gold fall 2.3% or nearly $50 in minutes ($1,871/oz at 0514 GMT to a low of $1,827/oz at 0523 GMT). The price fall was odd as there was no breaking news or ostensible reasons for the sell off and other markets were unchanged at the time.

Speculation was that the falls were technical in nature after stop losses were triggered. 


Gold in US Dollars Spot – 1 Day (Tick)

However, Asian traders spoke of some 4,000 lots of gold being ‘dumped’ on the COMEX and of a “large sell order”. 

This would suggest that the sellers may not have been profit motivated and official selling may have been involved.

After the Swiss franc intervention and currency debasement yesterday, market participants are wary of further official government and central bank intervention. With further gains for the Swiss franc artificially capped (at least in the short term), it would be naïve to exclude the possibility of intervention in the gold market and a continuing strategic capping of the price. 

“The start of full-on currency wars has started in earnest,” said Maurice Pomery, chief executive at Strategic Alpha, quoted in the front page of the Financial Times today. “After currency wars come trade wars and as we see the exporting world pressured as the developed world contracts, tensions will rise.”

Central banks, from the Swiss National Bank to the Bank of Japan, are openly intervening in the currency markets and devaluing their currencies and therefore may be surreptitiously intervening in the gold market.

The safe haven Swiss franc is now pegged to the not so safe haven euro and Japanese money printing is leading to question marks over the safe haven status of the yen. Therefore, risk averse money is likely to flow into gold.

Gold is an internationally traded currency that is not controlled by any one government and therefore cannot be debased, unlike fiat currencies. A way to control gold (at least in the short term) is by market manipulation and capping or lowering the price at key strategic and psychological moments in order to prevent enthusiasm and the public from seeking out the safe haven.

Reuters reports this morning that analysts believe that “expectations that other central banks may step in to intervene in the currency market” may have contributed to the “restraint” in the gold market overnight.

Given the fact that global currency wars have intensified and will likely escalate in the coming weeks, we should be mindful of peculiar and volatile short term movements that give false signals.

All interventions and market manipulation can be successful in the short term but as ever the real fundamentals of supply and demand will dictate the price of all goods, services, assets and currencies in the long term.

Investors and store of wealth buyers should continue to buy on the dip.

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SILVER 
Silver is trading at $40.92/oz, €29.12/oz and £25.58/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,829.50/oz, palladium at $746/oz and rhodium at $1,800/oz. 

NEWS
(Reuters)
Gold drops as stocks rally; debt crisis lends support

(Reuters Africa)
Spot gold tumbles 2 pct, tracks US gold in technical selling

(Bloomberg) 
Gold Drops for Second Day as Equity Rebound Trims Haven Investment Demand

(Reuters) 
Libyan convoy with gold, cash crossed to Niger-NTC spox

(SouthAfrica.info) 
South African gold production declines

COMMENTARY
(The Telegraph)
Evans-Pritchard: German austerity drive risks Euro-slump

(The Telegraph) 
Switzerland abandons floating exchange rate in dramatic 'currency war' twist

(King World News) 
Marc Faber - This Will End in Disaster & You Must Own Gold

(The Telegraph) 
Libya: Mystery of Gaddafi and the gold-laden convoy crossing the desert to Niger

(King World News) 
Andrew Maguire - LBMA Shorts Will be Forced to Take Losses

(Zero Hedge) 
"The European Financial System Is Finished" In Quotes 

(CNBC) 
Another Reason to Buy Gold: Franc Losing Safety Status

(MarketWatch) 
Euro crisis helps gold shine

(MarketWatch) 
Gold’s rally will continue