2012 BoA Top Trades: Bullion vs. Euro

Gold is trading at USD 1,740.10, EUR 1,295.90, GBP 1,114.30, CHF 1,604.5, JPY 135,900 and AUD 1,700.4 per ounce.

Gold's London AM fix this morning was USD 1,744, GBP 1,114.88, and EUR 1,296.08 per ounce.

Friday's AM fix was USD 1,751.00, GBP 1,116.50, and EUR 1,298.29 per ounce.

At the open in Asia, gold spiked from $1,746.75/oz. to $1,755/oz. before being capped at that level and falling back to its opening price. It remained near the $1745/oz. mark overnight and this morning in Europe until soon after the London AM Fix ($1,744/oz.) when selling commenced again.

Traders may be hesitant to place positions ahead of the Franco-German summit and there may also be some profit taking after the nearly 4% gains seen last week.


Cross Currency Rates

Gold will likely be supported this week by the intractable eurozone debt crisis and renewed jitters about Iran which has seen oil rise again today (Nymex/ WTI at $101.80).

Iran warned yesterday that any move to block its exports would lead to oil at $250 a barrel.

Physical buying continues internationally. Indian gold edged higher this morning following a weaker rupee, and premiums in the physical market steadied after a recent lull in buying. Chinese demand is gradually picking up again ahead of Chinese New Year.

Safe haven demand from Eurozone countries has increased significantly in recent days due to the concerns about euro exposure due to the possible collapse of the single currency.

Speculators, hedge funds and money managers pared their holdings of Comex gold and silver futures and options in the week ended Nov. 29, according to data released Friday by the Commodity Futures Trading Commission (CFTC).

The CFTC data, typically released Friday, were delayed because of the Thanksgiving holiday.

In gold futures and options, 4,207 long positions were cut and 1,249 short positions were cut.

This reduced their net position by 2% to 146,298 long contracts, from 149,256 long contracts a week earlier.

The managed fund net-long position represents around 14.6 million troy ounces of gold.

In Comex silver futures and options, these funds added 110 long contracts and 316 short contracts. This reduced their net long position by 2% to 12,334 contracts, from 12,542 contracts the previous week.

The net silver position represents around 61.6 million troy ounces of silver.

In platinum, 243 long positions were cut and 555 short lots were added, taking the net long position down to 12,952, from 13,750.

In palladium, 64 long lots were cut and 506 short lots were added, reducing the net long position to 5,231 from 5,800.

Volatility in currency markets has increased markedly in recent months and this looks set to continue in the coming weeks as liquidity dries up in the run up to and during Christmas and the New Year.

Currency markets have proved even more difficult to predict than usual due to the global debt crisis. News headlines and rumors are causing large swings in the market.

Intervention from governments around the world to weaken their currencies and competitive currency devaluations have surprised markets. Investors can no longer assume that the yen, Swiss franc and the US dollar will be safe havens.

Foreign exchange trading today normally averages lb4 trillion (EUR4.7 trillion) a day, according to the Bank for International Settlements.

2012 BoA Top Trades - Buy Gold vs. Euro

Gold and the dollar are Bank of America Merrill Lynch's top currency trades for 2012.

BoA, the second-biggest U.S. bank by assets after JPMorgan Chase & Co., said that investors should buy gold versus the euro as the ECB engages in quantitative easing to contain debt turmoil.

David Woo, global head of rates and currencies in New York at the Bank of America Corp. unit, told clients in research note that "the ECB will be buying more government debt and doing QE, so buy gold against the euro."

"The second major theme is US fiscal tightening is about to come, and the US economy will slow, and this will be very good for the US dollar."

"The general theme for the year ahead is pretty negative for the risk environment," Woo said.

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Silver

Silver is trading at $32.60/oz., EUR24.24/oz. and lb20.83/oz.

Platinum Group Metals

Platinum is trading at $1,541.70/oz., palladium at $644.75/oz. and rhodium at $1,575/oz.

Mark O'Byrne is executive director of Ireland-based GoldCore.

About the Author
Mark O'Byrne

Mark O'Byrne is executive director of Ireland-based GoldCore.

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