GOLD PRICES fell near 3-week lows against the US Dollar late in London trade Wednesday, while Euro prices hit 1-month lows as the single currency extended its 4% rise on the FX market and government bond prices fell hard once again.
The Eurozone's quantitative easing is "proceeding well," said ECB president Mario Draghi today, telling his regular press conference that QE has "contributed to a broad-based easing in financial conditions, a recovery in inflation expectations, and more favourable borrowing conditions for firms and households."
With Eurozone consumer prices showing 0.3% annual inflation in May, Draghi re-stated the ECB's 2.0% target, and its commitment to continuing with €60 billion per month of new QE government-bond purchases.
The sell-off in Eurozone government bonds worsened Wednesday, however, with 10-year German Bund yields jumping 0.17 percentage points to reach 0.88% as prices dropped, extending the fastest 3-month rise in Berlin's borrowing costs since mid-2008.
Back then, German yields rose to 4.50% as the European Central Bank raised its key interest rates just before the collapse of Lehman Brothers.
"Gold prices still have room to fall," says a new analysis from Bernard Dahdah at French investment and bullion bank Natixis, pointing to lower production costs for the world's gold miners – now put at $960 per ounce on an all-in sustaining basis.
"Gold producers therefore have limited incentive to cut output since the vast majority of mines remain profitable."
Crude oil's Opec cartel today agreed not to reduce their national output quotas, with "big oil" companies apparently the "surprise victims" after seeing profits drop 50% in the first quarter already.
Market prices reversed yesterday's 2% gains, dropping almost 7% from early May's 6-month high.
"Commodities have had a wonderful ten years," says UK asset manager F&C's Gary Potter, "but the [next] decade
will be a very tough period as the world economy uses and recycles resources more efficiently.
"We do not hold any dedicated commodity funds; we think they are potentially on life support."
"Gold is
still cheap relative to fixed income," counters commodities fund manager Nicholas Johnson at US investment giant Pimco, pointing to the record-low yields offered by government bonds because of their record-high prices.
"Gold could really pop and move."
