“Safe Haven Demand” for Gold Seen Amid Fresh Cyprus Chaos, But #1 ETF Shrinks Again
The GOLD PRICE continued to hold above $1600 per ounce in Asian and early London trade on Tuesday, easing back from Monday’s 3-week high as world stock markets struggled again amid fresh uncertainty and rumor over Euro-member Cyprus’ banking crisis.
Silver below $29 per ounce held flat alongside other commodities, while major-government bond prices rose.
Ahead of the US Federal Reserve’s 2-day policy meeting, 10-year Treasury yields edged down to 1.94% per year.
Consumer price inflation was reported at 2.0% on Friday.
“[The Eurozone’s] long-running problems…are not going to be resolved quickly,” said New Zealand’s finance minister Bill English in an interview this morning.
“I think over the next five to seven years, you’re going to see these occasional outbreaks of [Eurozone] anxiety in quite unexpected ways.”
Following Monday’s jump in the gold price, “Whether this will be enough to push prices sustainably higher remains to be seen,” notes the latest Precious Metals Update from German refining group Heraeus.
“In the past, such measures fuelled investors’ uncertainty and gave a boost to bullion demand.”
Monday saw turnover in US gold futures contracts jump 28% from the previous week’s average, but the outstanding number of open contracts was barely changed by session’s end.
The giant SPDR Gold Shares – briefly the world’s biggest exchange-traded trust fund when Dollar gold prices peaked in late-summer 2011 – saw yet another outflow from its holdings, down for the 32nd time this year to a 20-month low beneath 1,220 tonnes.
By value the SPDR Gold ETF slipped beneath $63 billion for the first time since July 2011.
Silver ETF holdings, in contrast, rose to a new all-time record at 19,738 tonnes according to Bloomberg data.
Silver prices again touched $29 per ounce in Asian and early London trade today, before slipping back unchanged from last week’s finish.
“We now see the gold market building a solid base at [$1600 per ounce],” says a London bullion-bank trader in a private note, with “the fundamentals for gold as a ‘safe-haven’ coming back in force.”
“For as long as there is a lack of clarity,” agrees today’s note from Commerzbank, “and especially if the situation should escalate, gold should continue to remain in high demand as a safe haven.”
Cyprus last night declared an emergency 3-day Bank Holiday, giving parliament time to argue and vote on the proposed “bail-in” which would cut bank deposits below €100,000 by 6.75% and by 9.9% above that level.
Nicosia’s finance ministry has now proposed a “zero levy” on savers with less than €20,000, according to the BBC.
After the Kremlin in Moscow said it may call in a €2.5 billion loan to Cyprus in retaliation for the tax hitting Russian savers, energy giant Gazprom this morning denied Greek press reports that it has offered to pay all of Cyprus’s €16bn rescue in return for oil and gas exploration rights.
“Cyprus is shaking…the people are bleeding,” says editorial comment in German tabloid newspaper Bild.
Publicly criticizing the levy on German TV on Saturday, German finance minister Wolfgang Schaeuble had in fact “demanded a 40% depositor tax” according an un-named Cypriot official quoted by Bloomberg.
“The blackmail…peaked at 3.00am on Saturday,” according to local reports, when Germany’s Jorg Asmussen apparently phoned European Central Bank president Mario Draghi, and told him to prepare the ECB for the collapse of two Cypriot banks.
Looking ahead meantime to Wednesday’s updated Budget from the UK’s coalition government, “There is little room to move on fiscal policy,” says FX strategist Simon Derrick at BNY Mellon.
“[So] monetary policy remains the principal tool for providing additional support to the economy.”
“With the economy flatlining,” agrees analysis from HSBC bank – also quoted by CNBC – “the mood music certainly suggests some sort of change [to the monetary policy framework] is on the cards.”
Japan’s central-bank governor Shirakawa last night ended his term and was replaced by so-called “radical inflationist” Kuroda.
The Bank of Japan has already set itself a 2.0% target for annual inflation.
The Japanese Yen has lost almost one-fifth of its value against the Dollar since the new Abe administration took over in November.
Indian gold prices meantime rose Tuesday as the Rupee fell hard – and the Mumbai stock market dropped 1.5% – following an interest-rate cut and news that the ruling coalition government has lost the support of a key member party.
“With the federal elections next year,” Reuters quotes Bank of Baroda economist Rupa Rege Nitsure, “political stability is key for all economic reforms” planned in the world’s No.1 gold consumer nation, now struggling with a large balance of trade deficit.
“[The exit of the Dravida Munnetra Kazhagam party] will surely delay them.”
By Adrian Ash, BullionVault Research Team
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.
(c) BullionVault 2013
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