Gold's
Fall Blamed On "Speculative Sellers", European Politicians "Papering
Over Differences"
THE SPOT gold price traded lower to $1732 an ounce
Friday morning in London, near one-month lows, while stock markets and the Euro
also fell as a two-day European summit came to a close with several issues
unresolved.
The gold price in Euros meantime sank to its lowest level
since the end of August at €42,647 per kilo (€1326 per ounce).
Heading
into the weekend, the Dollar gold price looks set for its second
successive weekly fall, the first time this has happened since May.
"We
hold selling by speculative financial investors responsible for the price
slide," says today's Commodities Daily note from Commerzbank.
"In
recent weeks they had strongly built up their positions and may now be seeing
themselves forced to take profits given the faltering upswing."
The silver price also fell this morning,
hitting a six-week low at $32.26 per ounce. Most other commodities saw gains,
with the exception of copper which sold off, while US, UK and German government
bonds all rallied.
Leaders
meeting at the two-day European Union summit in Brussels, which concludes
today, took a step towards the creation of a single Eurozone banking supervisor
Thursday.
An
agreement was reached that will give the European Central Bank supervisory
powers over the approximately 6,000 financial institutions in the single
currency area.
Germany
has previously argued that only the largest institutions should come under ECB
supervision. Under the agreement, day-to-day oversight for smaller institutions
will remain in the hands of national bodies, although the ECB will have powers
to intervene in any bank.
There is
no agreement however on the direct recapitalization of banks by the European
Stability Mechanism. Leaders agreed in principle to the idea of using bailout
funds to recapitalize banks in July 2011, although the creation of a single
banking supervisor has since become a prerequisite for that.
Thursday's
agreement "papers over significant differences over the direct recap"
one unnamed EU official told the Financial Times.
"The
direct recap is going to be much more difficult."
A French
source briefed Reuters to say they expect direct recapitalization could be as
early as the first quarter of next year, although a German government source
told the same newswire it is "very unlikely" to happen soon.
The summit's
conclusions published
Friday contained no mention of Spain or Greece.
"Here's
an idea that almost certainly wasn't discussed at Thursday night's European
summit," adds a story in Friday's Wall
Street Journal.
"Using
countries' gold reserves to lower the borrowing costs of Eurozone
governments."
The WSJ
report refers to a proposal by the World Gold Council that
some Eurozone nations could reduce bond yields if they pledged gold as
collateral.
"As
a real asset, the use of gold as collateral is not inflationary," says
economist Andrew Lilico in a paper by consultancy Europe Economics commissioned
by the World Gold Council, "any more than would be the use of historic
buildings or military equipment or islands or any other of the forms of
collateral that have been proposed for distressed sovereigns."
Although
it appears the proposal was not discussed at this week's EU summit, a draft paper on the subject has been
published on the European Parliament website.
Over in
India meantime, traditionally the world's biggest source of gold demand, gold bullion imports in the final three
months of the year are set to rise for the first time in six quarters following
recent gains for the Rupee, Bloomberg
reports.
"The
appreciation in the Rupee has caused the gold price to correct from the record
levels and this correction is seen as an opportunity by many to get into
gold," says fund manager Chirag Mehta at Quantum Asset Management.
"With
the festival season and marriage season starting now, demand will gain further
momentum."
Gold
imports could rise as high as 200 tonnes this quarter, according to All India
Gems & Jewellery chairman Bachhraj Bamalwa, up from an estimated 157 tonnes
in Q4 2011.
In South
Africa, Gold Fields has said all but 1500 of the 15000 gold mining workers threatened with
dismissal have returned to work. Those who have not have been fired.
Ben Traynor
Editor of Gold News, the analysis and
investment research site from world-leading gold ownership service BullionVault, Ben
Traynor was formerly editor of the Fleet Street Letter, the
UK's longest-running investment letter. A Cambridge economics graduate, he is a
professional writer and editor with a specialist interest in monetary
economics. Ben writes and presents BullionVault's weekly gold market summary on
YouTube and can be found
on Google+
Please
Note: This article is to inform your thinking, not
lead it. Only you can decide the best place for your money, and any decision
you make will put your money at risk. Information or data included here may
have already been overtaken by events – and must be verified elsewhere – should
you choose to act on it.
