Precious Metals Steady as China Spurns Euro Debt

Wholesale market prices to buy gold and silver repeated yesterday's rally in London trade after a slight drop Thursday morning, rising back above $1594 and $29.30 per ounce respectively as platinum and palladium also stemmed this week's sharp drops.

  "Technically, many [precious metals] are now oversold," says a note from dealers Intl FC Stone, pointing to chart analysis and noting that gold trading volume on the Globex futures platform was 40% above the last month's quiet average on both Tuesday and Wednesday.

"The [price] drop was large and quick,” Bloomberg quotes analyst Xiang Nan at Citics Futures Co., calling a rebound in Asia's wholesale demand to buy gold overnight "not surprising. But the dollar looks to be strong in the near term and this will limit gains."

Thursday morning saw the US dollar creep back from its near-2012 highs vs. the euro, while major-economy government bonds also slipped in price, nudging yields higher from yesterday's historic lows.

Asian stock markets fell however for the fifth session in a row on Thursday, despite news of a turnaround in China's balance of trade to a surplus of $18.4 billion in April. 

Crude oil extended its drop to nine days on the run, the longest stretch since early 2009. European stock markets rallied around lunchtime in London, after giving back all of an early rise.

"We doubt whether effective demand by households and firms in the US and the UK today is being boosted materially by 10-year Treasuries being at [historic low yields]," says a new paper from Citigroup economist – and former Bank of England policymaker – Willem Buiter, co-authored with Ebrahim Rahbari.

"[It's time for] reducing rates all the way to zero" across the US, Euro, Japan and UK they advise, "carrying out more imaginative forms of quantitative easing and credit easing...[and] engaging in helicopter money drops: a combined fiscal monetary stimulus."

The Bank of England voted today to keep UK interest rates at a record low of 0.5% for the 38th month in succession. It also left its "quantitative easing" program of government-bond purchases unchanged at £325 billion – equal to almost one-third of all gilts currently in issue.

Sterling pushed up to fresh three-and-a-half year highs versus the Euro currency. Prices to buy gold in British Pounds held near nine-month lows beneath £985 per ounce.

Gold priced in Euros recovered from Wednesday's four-month low at €39,200 per kilo.

Shorter-term, howerver, prices to buy gold "continued their melt-down" on Wednesday, says the latest technical analysis from bullion bank Scotia Mocatta, pointing to the sharp recovery from yesterday's four-month low.

"[That] 1585 level was also our initial downside target on this move," says Scotia. "A close below this critical support level will open up a full retracement to 1522. Topside resistance is at 1612, the previous interim low."

Strong demand to buy gold "will likely require continued deterioration in Europe or in the United States," says Goldman Sachs' updated gold price forecast today.

Restating Goldman's 2012 target of $1840 per ounce on average, "The case for higher gold prices remains in place," says team leader Jeff Currie, calling gold a "currency of last resort" and warning that June will prove a key period because of US Federal Reserve decisions, European political summits, and a possible re-run of last week's indecisive Greek election.

"If Greece decides not to stay in the Eurozone, we cannot force Greece," said Germany's finance minister Wolfgang Schaeuble at a conference Wednesday.

"There is no alternative to the agreed consolidation program if Greece wants to remain a member of the euro zone," said his former deputy – and current European Central Bank member – Jorg Asmussen to the Handelsblatt newspaper.

China's $440 billion sovereign wealth fund China Investment Corp. has suspended new purchases of Eurozone government debt, its president Gao Xiqing said in an interview Thursday.

"What is happening in Europe right now is of course of concern," Gao said. "We still have our people looking at opportunities in Europe, even though we don't want to buy any government bonds."

About the Author
Adrian Ash

Adrian Ash runs the research desk at BullionVault. Formerly head of editorial at Fleet Street Publications – London's top publisher of financial advice for private investors – he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to a number of investment websites.

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