Today’s AM fix was USD 1,369.50, EUR 1,031.10 and GBP 880.93 per ounce.
Yesterday’s AM fix was USD 1,376.75, EUR 1,041.89 and GBP 887.37 per ounce.
Gold rose $6.70 or 0.49% yesterday to $1,385.40/oz and silver surged to a high of $22.083 and finished with a gain of 1.58%.
Gold has fallen another 1% today despite weakness in Asian and European stock markets prior to an important decision by the German constitutional court about the legality of the ECB’s debt monetisation.
Technically, gold looks vulnerable of a fall back to test support at $1,343/oz and a breach of these levels could see gold test support at the $1,300/oz level.
Gold in USD, 90 Days – (Bloomberg)
Global financial markets have been under pressure since Fed Chairman Ben Bernanke said last month that the Fed could decide to scale back buying at the next few meetings if the U.S. economy showed continued signs of strengthening.
However, much of the data and the fundamentals suggest that the U.S. is on the verge of a sharp recession. Therefore the Federal Reserve is unlikely to revert to conventional monetary policies anytime soon.
Global Money Supply Narrow YOY Growth – (Bloomberg)
Rising interest rates will be negative for most markets but not for gold which is correlated with interest rates as was seen in the 1970’s. During that decade, gold prices rose as interest rates rose and peaked as interest rates peaked.
Gold is vulnerable to rising interest rates towards the end of the interest rate tightening cycle when positive real interest rates are evident.
The surge in physical demand in Asia, seen in April after the unusual price plunge, has cooled off.
The drop set off a mad rush for bullion in India, China and Asia that pushed premiums higher amid a supply crunch. Dealers in Singapore confirmed to Reuters that demand for gold bars had eased and gold bars and coins were easier to obtain.
Meanwhile, holdings in SPDR Gold Trust ticked higher and the world’s largest gold-backed exchange-traded fund said its holdings rose 0.3% to 1,009.85 tonnes on Monday.
Gold priced in yen, euros or Australian dollars may outperform bullion priced in U.S. dollars in the coming months due to the financial and economic challenges facing Japan, the Eurozone and Australia according to Bloomberg Industries.
A pledge to double the size of the Bank of Japan’s balance sheet has already seen the yen fall sharply versus all major currencies and gold.
Actions by the ECB to potentially boost monetary stimulus amid weakness in the region have not led to material weakness in the euro yet.
A bursting property bubble, weakness in iron ore and coal prices in addition to lower benchmark rates have led to declines in the Aussie dollar in recent days and further weakness in the Aussie dollar is very likely – especially versus gold.
Global Money Supply YOY Growth – (Bloomberg)
However, financial and economic conditions in the UK and U.S. are not much better materially than those in the EU, Japan and Australia. Indeed the total debt levels, both public and private, are of a scale that may result in financial dislocations and will result in further currency debasement in the coming months.
Cross Currency Table – (Bloomberg)
Money supply in the U.S. continues to rise rapidly making the U.S. vulnerable to rising interest rates especially given the national debt has surged to nearly $16.75 trillion and the U.S. has unfunded liabilities of between $50 trillion and $100 trillion.
Contrary to some extremely optimistic analysis, the U.S. and Eurozone debt crisis is far from over and this is yet another interlude of calm before coming debt storms.
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