Dollar Rally & Soros Sales See Gold Hit 6-Month Low as G20 Denies “Currency War” Editor: Investors/ the market have become convinced that the worsening recession in the Eurozone and the Q4 2012 economic contraction in the US and UK don’t matter. For the time being economic headwinds that include depressed housing markets, fragile banking sectors, weak lending to the private sector, deleveraging by firms and households, large fiscal imbalances and high unemployment are also being ignored. A short-term, blinkered view of the world has led many investors to conclude that the debt crisis has been successfully resolved. As a result they are moving out of gold and into equities which are closing in on their all-time highs. The structural problems facing many western economies will make an appearance again sooner or later, in the mean time our trend following bias tells us to make hay while the sun shines, which is why the Investment Portfolio has allocated capital to both platinum and palladium, as well as various equity sectors.

Gold prices fell again Friday morning in London, trading at a 6-month low beneath $1627 per ounce as the US Dollar continued to rise on the currency market.

Gold for Sterling investors touched a 2-week low beneath £1050, and Euro-gold held above Tuesday’s 8-month low at €1220 per ounce.

India meantime approved use by exchange-traded gold trust funds of household gold deposits made at retail banks.

New US regulatory data yesterday showed big-name hedge fund manager George Soros halving his gold ETF position in the final 3 months of 2012.

“If the equities market continue to roll higher,” Reuters quotes Bill O’Neill at Logic Advisors in New Jersey, “investors could divert more money away from gold in the near term.”

“[Gold] has fallen out of fashion,” agrees a wholesale-market dealer in London. “All eyes are on equities and [platinum-group] metals.”

Platinum ticked higher Friday lunchtime after losing 2.0% from Thursday’s near-18 month highs.

European stock markets also recovered early losses to trade unchanged for the week, as did the broad commodity indices.

Major-government bond prices eased back, nudging 10-year US and UK interest rates towards their highest weekly closes since April above 2.00% and 2.20% respectively.

“Prospects for better global growth,” says the latest Metals Metals Monthly from bullion-bank Scotia Mocatta, “have increased the opportunity cost of holding gold.”

For silver, in contrast, “The potential for economic recovery is boosting the outlook for industrial demand,” Scotia adds.

Silver prices also fell Friday morning, outpacing gold’s 2.3% drop for the week but hitting only a 5-week low of $30.20 per ounce.

When gold prices were last at current Dollar levels, in August 2012, the price of silver was more than $2 lower than it was at lunchtime in London today.

“There is some skepticism out there that February is not going to be a great month,” says one stock broker quoted today by Reuters, “but I think there’s more room to run.”

Looking at this week’s raft of worse-than-forecast Europan data, “We’re not hopeful that the Eurozone will overcome its economic crisis anytime soon,” writes Standard Bank’s currency strategist Steven Barrow this morning.

“As long as that’s the case, we need to be ready for financial strains to re-emerge, just as they are re-emerging in the UK.”

Finance ministers from the G20 group of nations now meeting in Moscow today said they want to switch debate from “competitive devaluation” – where countries fight to gain export sales by weakening their individual currencies – to discussing economic growth instead, reports CNBC.

But “currency war is what we need to get the global economy out of the crisis,” writes Lars Christensen, head of Emerging Markets Research at Danske Bank, on his personal blog, The Market Monetarist.

“Monetary easing is much preferable to the populist alternative – protectionism and deflationism.”

Gold prices “will ultimately benefit from the debasement of currencies,” says a London bullion dealer in a note, as governments continue “rolling today’s problems onto our children and grand-children.

“Why do you think that central banks and sovereign funds are still buying gold?” he asks, noting yesterday’s news of a 5-decade high in official-sector gold demand reported in the World Gold Council’s quarterly Gold Demand Trends.

Adrian Ash | BullionVault

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