247Bull.com Editor: More and more people seem to be reaching the conclusion that the worst of the Eurozone crisis is over, and that we are making real progress towards a sustainable recovery. However, although things appear stable, what we are seeing is what economist Hyman Minsky referred to as “stability is breeding instability”. In other words, a period of temporary stability which engenders greater risk taking – eroding margins of safety, reducing liquidity and raising cash flow commitments relative to income and profits. This period also raises the price of risky assets relative to safe assets, all of which combine to weaken the ability of the economy to withstand even modest shocks.
Wholesale gold bullion prices hovered just below $1670 an ounce Monday morning in London, having regained some ground after Friday’s losses, while stocks and commodities also ended the morning up on the day, while the Euro and the Chinese Yuan made gains against the Dollar.
“We saw a fair amount of buying from China [this morning] after gold prices fell last Friday,” says Peter Tse, Hong Kong-based director at bullion bank Scotia Mocatta.
“The Yuan hit a record high [against the Dollar], making local prices cheap…[but] gold is still range bound and I wouldn’t put too much on this morning’s rise.”
“Gold needs to sustain the close above the $1665 area to signal a move toward the $1695 area,” adds a note from Barclays Capital, whose analysts see support for gold at $1640 and resistance at $1680.
Open interest in gold futures and options on the New York Comex recovered last Tuesday compared to the previous Monday, climbing 3.4%, the weekly Commitments of Traders report from the Commodity Futures Trading Commission shows. The CFTC reported its lowest open interest in over three years for New Year’s Eve.
The so-called speculative net long however fell last Tuesday to its lowest level since August. The spec net long measures the difference between the number of ‘bullish’ long and ‘bearish’ short contracts held by traders classified as ‘noncommercial’, such as hedge funds.
“The fact that speculative financial investors are continuing to withdraw from the gold market is doubtless partly to blame for the gold price’s failure to make any substantial recovery,” says a note from Commerzbank.
“More and more ‘shaky hands’ are getting out of the gold market…[but] their current skepticism may offer a springboard for a sharp price rise in future were sentiment among money managers to shift again.”
Like gold, silver also recovered some of Friday’s losses this morning, climbing to $30.77 an ounce by the end of the morning in London.
The US Treasury will not mint a $1 trillion platinum coin as a way of getting round the federal debt ceiling, a spokesman said Saturday.
Various commentators, including Nobel Prize-winning economist Paul Krugman, have proposed in recent weeks that the Treasury could use an existing law, designed to allow flexibility in supply to meet demand from platinum coin collectors, to produce such a coin without needing to seek the approval of Congress. The coin could then be deposited with the Federal Reserve, according to the proposal, and its face value credited to the Treasury’s account.
“Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” said Saturday’s statement from Treasury spokesman Anthony Coley.
“Congress can pay its bills or they can fail to act and put the nation into default,” added White House spokesman Jay Carney.
“When congressional Republicans played politics with this issue last time, putting us at the edge of default, it was a blow to our economic recovery, causing our nation’s credit rating to be downgraded.”
The Euro meantime touched its highest level against the Dollar in almost eleven months Monday when it briefly traded above $1.34.
German finance minister Wolfgang Schaeuble said Friday that the Eurozone is “over the worst of the crisis”, a day after European Central Bank president Mario Draghi said confidence in financial markets has “significantly improved”.
Elsewhere on the currency markets, the Yen fell to its lowest level against the Dollar since June 2010 this morning, after Japan’s prime minister prime minister Shinzo Abe said he wanted the next Bank of Japan governor to be someone “who can push through bold monetary policy”.
Following his election victory last month, Abe said his government and the central bank will issue a joint statement ahead of its policy meeting later this month, in which they will set a 2% inflation target – double the current targeted rate. The most recent data show Japanese inflation running below zero, indicating price deflation.
China’s State Administration of Foreign Exchange (SAFE) announced Monday that it has created a new unit tasked with finding new investments to diversify China’s $3.31 trillion reserves, though it did not add what such investments might be.
Ben Traynor | BullionVault