Gold Jumps as Dollar Falls, Eurozone Prepares "Unconventional" Policy for Near-Depression Level Unemployment
The price of gold leapt to unwind all of last week's losses for US investors Tuesday morning in London, as the US Dollar fell hard on the currency market.
Retouching a one-week high for UK and European buyers – even as the Euro moved back above $1.34 and the British Pound broke its best level in 2009 at $1.51 – gold rose alongside Asian and London stocks, which added to Monday's sharp gains on Wall Street.
"I would say that the weaker Dollar has supported gold," Phillip Futures analyst Adrian Koh told Reuters in Singapore overnight, and "I think today or the next will be key for gold as we are hovering near key downtrend resistance around $910-$915.
"Unless we are able to hold above these levels, gold could still very much hover around these levels for some time."
Crude oil today edged back after jumping towards $55 per barrel on Monday, but held 21% better for 2009 to date.
Bond prices were mixed, meantime, falling on UK and US government debt but rising to push German bund yields lower ahead of Thursday's European interest-rate decision.
"We expect a 50 basis points rate cut" from the European Central Bank, says today's precious metals note from Standard Bank, "and possibly some non-conventional policy measures [which] would benefit gold should they be big and bold.
"But the ECB is usually conservative and very conventional," it adds.
Returning from the May Bank Holiday, the FTSE100 here in London today jumped 2.9% to its best level since January.
French and German shares held flat, however, after new data showed factory gate prices falling by 3.1% year-on-year across the 16-nation Eurozone, adding to pressure on this Thursday's central-bank policy vote.
March saw unemployment in the Eurozone rise for the eighth month running to reach a 8.9%, as Spain joined Lithuania and Latvia with near-Depression rates of joblessness just shy of one-in-five.
"Gold had a strong move to the upside yesterday with liquidity reduced due to the London holiday," said Mitsui in its morning report. But "in comparison to 2008 activity, the current net position [of speculative traders] remains somewhat constrained.
"Despite periodic explosions both to the upside and downside, the metal remains locked within an $880-906 trading range."
Latest data from US regulator the CFTC show speculative positions in Gold Futures and options creeping higher last week, but the outstanding volume of leveraged bets remains one-third below the Jan. 2008 record.
"We have seen good physical selling with gold above $900," Standard Bank adds, "and this seems to be the current trend.
"Equity markets have almost wiped out year-to-date losses [and] while we doubt this momentum in equities is sustainable, any safe-haven asset like gold – which provides no yield – will struggle to compete against the type of performance equities have been delivering."
