Jump in Euros “Confirms Gold as Safe Haven” as Cyprus Imposes Eurozone’s First-Ever Exchange Controls

247Bull.com Editor: The problems in the Eurozone are being reflected in the relative value of the euro. This is bullish for gold when priced in the single currency but bearish for the yellow metal when priced in US dollars. That said, gold is still attracting strong buying whenever it drops below $1,600, particularly in Asia.

The gold price slipped back to $1600 per ounce Thursday morning in London, heading into the 4-day Easter weekend 1.3% higher from the start of March.

Silver bullion was flat for the month at $28.65 after recovering yesterday’s sharp 2.3% drop.

European stock markets shrugged off overnight falls in Asia to trade 0.5% higher by lunchtime, while commodities ticked lower.

The Euro currency meantime crept back above $1.28 – a four-month low when broken on Wednesday.

North Korea today kept open a key border crossing despite cutting the last of 3 telephone “hotlines” to the South, citing “hostilie action” by Seoul and Washington, on Wednesday.

Gold lived up to its status as a safe haven again after all yesterday afternoon,” says Eugen Weinberg’s team at Commerzbank in Frankfurt, noting the two-month high at €1260 per ounce hit by gold in Euro terms.

“The uncertainty over the Cyprus crisis…should lend support to gold demand.”

Queues at Cyprus’s banks were reportedly “calm and orderly” today as a near 2-week bank holiday was replaced by the first exchange controls in a Eurozone state since the single currency was launched in 1999.

Daily ATM withdrawals are limited to €300, with check-cashing banned, overseas transfers restricted to €5,000 per month, and a limit of €1,000 on cash carried out of the country.

Overseas customers withdrew 18% of their Cyprus bank deposits last month, new data showed today.

Germany’s Spiegel magazine yesterday reported that “suspicious transactions” involving Cyprus government and central-bank personnel on the eve of the first, disastrous bail-out proposal are now being investigated.

Gold’s failure to break above $1620 per ounce – now seen by several chart analysts as where a downtrend in Dollar gold prices now comes – is “a little concerning” says a note from Swiss refiner and finance group MKS, “especially considering the uncertainty surrounding Cyprus last week.”

But although Cyprus “will likely fade from the headlines” counters the latest note from brokers INTL FCStone, “the unusual circumstances behind the country’s rescue will likely linger.

“In addition, the Italian situation should come back to unsettle the markets further, offering yet another prop for gold.”

Center-left politician Pier Luigi Bersani, who won the largest share of votes in Italy’s inconclusive election last month, was due today to update President Napolitano today on his failed attempts to build a coalition government.

Exchange-traded gold trust funds will meantime end March with their largest quarterly outflow since such products were launched a decade ago, according to Reuters data, down 7.2% to 2197 tonnes.

Those holdings hit an all-time record of 2366 tonnes in early December.

Gold prices in the first quarter of 2013 were heading today for a 3.5% drop in Dollars, a rise of 3.2% in Sterling, and no change from the end of December in Euro terms.

US Treasury bonds today eased back but kept 10-year yields beneath 1.90%.

Ten-year UK gilt yields continued to hold below that level, offering investors a 4-month low of 1.76%.

So-called “junk bonds” saw record new issuance in the first 3 months of 2013, according to the Dealogic consultancy, with higher-risk borrowers raising $148.6 billion from investors seeking higher yields – up by one quarter from Jan. to March last year.

Adrian Ash | BullionVault

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