Gold priced in euros surged through the €1,050/oz barrier to a high of €1,052.04 per ounce this morning. It’s up 7.2% this month, outperforming gold in dollars which is up 4.8%, and building on the 12% gains seen in 2014. Market participants are increasing allocations to gold in order to hedge a ‘Grexit’ and risks posed by euro money printing.
Gold in Euros – 5 Years (Thomson Reuters)
The euro slumped to a near nine-year low against the dollar after another report that the European Central Bank (ECB) is moving closer to announcing a full-scale quantitative-easing programme.
ECB policy makers, who have already cut their refinancing rate to a record, introduced a negative deposit rate and offered cheap funding to banks to boost lending, hold their next policy meeting on January 22.
The ‘single’ currency has lost 5.2% versus the dollar over the past three months, as a very weak recovery and concerns about deflation have raised expectations that the ECB will begin purchasing sovereign bonds, beginning what economists call “full-blown” quantitative easing.
Gold in Euros – 2 Years (Thomson Reuters)
CNBC reported yesterday that the ECB is planning to base its money printing programme on how much a national bank has paid to the ECB every year. This would then determine how much the ECB would buy of that country’s government bonds, a source close to the central bank told CNBC.
Ahead of the ECB’s January meeting, economists increasingly expect the bank to announce full-blown QE after the latest consumer-price data showed the eurozone is battling deflation.
Also supporting gold is the fact that the dollar has also weakened after the U.S. jobs report for December showed hourly wage growth contracted last month. This made investors delay their expectations for when the Federal Reserve will begin raising its benchmark interest rate.
There are also questions as to how successful QE in the Euro area will be given the mixed results seen in the U.S. and Japan. Many economists are skeptical of QE and do not think it will be the panacea that some seem to think it is.
According to economists polled in a Financial Times survey last week, “any effort by the European Central Bank to launch a massive quantitative easing programme this year would fail to revive the eurozone economy.”
The FT survey of 32 eurozone economists, mainly working in financial services, conducted in mid-December, found most expected the ECB to launch QE in 2015. However, most of the FT poll’s respondents expected growth and inflation to remain weak even with quantitative easing.
Anticipation of QE in the eurozone and the possibly of the failure of QE is seeing gold rise. Gold in euros is at a 16 month high, the first time at these levels since September 2013.
Resistance is at EUR 1,070 per ounce, however we would expect a correction soon given the speed of the recent gains.
Gold remains 25% below the record euro gold high of 1,400 per ounce achieved in September 2012 at the height of the most recent phase of the Eurozone crisis. With the crisis set to resume, those holding euro denominated assets should hedge that exposure by diversifying their portfolios and allocating to gold.
REVIEW of 2014 – Gold Second Best Currency, +13% in EUR, +6% GBP
OUTLOOK 2015 – Uncertainty, Volatility, Possible Reset – DIVERSIFY
MARKET UPDATEToday’s AM fix was USD 1,239.00, EUR 1,049.91 and GBP 820.97 per ounce.
Yesterday’s AM fix was USD 1,222.00, EUR 1,035.77 and GBP 808.09 per ounce.
Spot gold climbed $13.30 or 1.09% to $1,233.80 per ounce yesterday and silver rose $0.11 or 0.67% to $16.57 per ounce.
Spot gold in Singapore rose as high as $1,238.81 an ounce, its highest since October 23, and was trading up 0.3 percent at $1,241 in late morning trade in London.
Gold continued gains to the highest in almost 3 months. Plummeting oil prices which hit $45/barrel in New York and concern over when the Fed will increase interest rates are increasing gold’s attractiveness
U.S. Fed San Francisco President John Williams commented that raising rates in June would be a close call amid “strong momentum” in the labor market and weaker wage gains.
The yellow metal has also had more interest due to the uncertainty with the Greek elections and the ECB meeting both set for next week.
Gold bullion for immediate delivery rose as much as 0.9 percent to $1,244.29 an ounce, its highest price in dollars since Oct. 23, and traded at $1,239.06 at 10:01 a.m. in London, according to Bloomberg pricing.
Silver was up 2.3 percent at $17.10 an ounce. Platinum was equivalent with gold after spending most of the last 18 months at a premium to the yellow metal. Spot platinum was up 0.8 percent at $1,247.30 an ounce, while spot palladium was up 0.5 percent at $817.90 an ounce.
