Gold jumped 2.3 percent to a six-week high yesterday as sharp falls on stock markets globally led to renewed demand for gold as a haven.
Monday night and Tuesday saw renewed market turmoil across the world. Leading shares suffered their biggest daily fall since the middle of October, hit by renewed fears about the global economy and uncertainty in Greece following the announcement of snap presidential elections.
The FTSE 100 finished 142.68 points or 2.14% lower at 6529.47 yesterday as a combination of worries unsettled investors. Greece’s stock exchange crashed as the banking sector dragged the rest of the stock market down a staggering 13 percent, it’s most dramatic single-day decline ever. Greece is failing to exit its bailout amid uncertainty over its political future after the election news.
Meanwhile Chinese shares fell sharply in the wake of Monday’s disappointing trade data, showing a drop in imports, and a clampdown on its corporate bond market, while Japan was revealed to be deeper in recession than expected and the Nikkei was down 2.25 percent this morning.
The Shanghai Composite and Abu Dhabi’s ADX saw their sharpest falls since 2009. Wall Street joined in the global declines and stock markets lost $100 billion on Monday.
The already jittery market apparently balked at the shock announcement of Greek Prime Minister, Antonis Samaris, to hold a snap presidential election. If the government candidate loses it would pave the way for a general election in which the socialist Syriza party would be strong contenders.
Syriza say that they will renegotiate with the Troika and increase public spending which may put bondholders at risk. Britain’s Independent quotes Charles Robertson from Renaissance Capital warning that “a possible Syrizas election victory may force the Eurozone to choose between a fiscal union or the first euro exit.”
Greek Gold Stater Coin (323-281 B.C.)
Greece still has very high unemployment of around 25 percent and GDP has been wallowing since 2009 with a 1 percent rise in the cards for this year off a base that is 30 percent below 2009 levels.
The attention being brought to bear upon Greece highlights once again the hollow nature of the “recovery” in Greece, Europe and the western world. The crisis is far from resolved - merely to use the very true cliche - kicked down the road. Well we appear to be coming towards the end of the road in Greece and this could set the stage for the next stage of the Eurozone debt crisis.
On cue, gold reacted to the global turmoil as it should, rising nearly 3 per cent, over $30 at one stage. Silver made even more impressive gains, rising 5.3 percent.
Despite significant headwinds in 2014, in form of surging oil prices, surging and record high stock markets and the end of the FED’s QE, gold has performed very well this year and looks to be in the process of bottoming.
Gold is 15.5% higher in yen terms, 13.2% higher in euro terms, 7.7% higher in sterling terms and has even made 2% gains in the “strong” dollar this year (see table and chart). This demonstrates once again gold’s benefit as a long term, store of value.
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MARKET UPDATE
Today’s AM fix was USD 1,228.25, EUR 991.88 and GBP 783.82 per ounce.
Yesterday’s AM fix was USD 1,206.50, EUR 975.98 and GBP 770.98 per ounce.
Spot gold rose $24.60 or 2.2 percent to $1,229.60 per ounce yesterday and silver surged $0.66 or nearly 5 percent to $17.04 per ounce as renewed risk aversion leads to a flight to quality.
Gold in EUR - 1 Year (Thomson Reuters)
Gold in Singapore inched marginally lower today and that weakness continued in London trading. Gold remains near its seven-week high hit yesterday. A small rebound in equity markets and lower crude prices may have offset the impact of a weaker dollar.
Spot gold was down 0.3% at $1,229.90 an ounce in late trading in London The metal had risen to $1,238.20 yesterday, its highest since October 23.
Since November 7, gold has climbed nearly 10% from a four-year low. Japan’s massive QE experiment, China’s stimulus programme and signs that the ECB will increase money supply are again heightening gold’s appeal as a store of value.
Ultra loose monetary policies are set to continue despite the constant threat that the Fed may increase interest rates. As policy makers try to revive economies, major central banks will together add almost three times more liquidity next year than they did in 2014, according to Credit Suisse Group AG, as reported by Bloomberg.
Holdings of the SPDR Gold Trust, the world's largest gold ETF, rose 0.37% to 721.81 tonnes on Tuesday.
India, which accounts for about a quarter of global bullion demand, eased import restrictions on gold bullion, Finance Minister Arun Jaitley said today. The nation may change a rule mandating that “star trading houses” export all of their gold imports, Reuters reported today, citing an unnamed source.
Silver’s 5.3 per cent surge was the biggest gain since December 1. The price reached $17.23, the highest since October 29. Palladium rose 1.7 percent to $811.60 an ounce.
This year, gold is up 2.5 percent and palladium has climbed 13 percent while silver has slumped 12 percent and platinum dropped 9.2 percent. Silver has underperformed and looks very cheap relative to overvalued asset markets and indeed relative to gold and this is leading to robust demand for small coins and bars.
Silver in USD - 5 Years (Thomson Reuters)
The U.S. Mint has sold a record number of silver coins this year as demand for silver bullion helped silver recover more than 20 percent since falling to a five-year low early this month.
Purchases of American Eagle silver coins reached 43.051 million ounces in 2014, data on the U.S. Mint’s website shows. That tops last year’s 42.7 million ounces, the previous all-time high, according to an e-mailed statement yesterday. There are still enough supplies to keep selling 2014 dated coins through the week starting December 15, the mint said.
A surge in demand prompted the mint to suspend sales in November for more than a week because of a lack of inventory. When the coins were again made available for purchase, it was on allocated basis.
Buying has increased with prices heading for a second straight annual loss, the longest slump since 1992 and as silver buyers accumulate on price weakness and in anticipation of higher of prices.
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