247Bull.com Editor: The comment by George Soros that, “when the Euro was close to collapsing in the last year… gold was destroyed as a safe haven” is hard to fathom. In September 2012 gold priced in euros reached an all-time high of 1,378 euros per ounce. It therefore functioned as one would expect. It seems likely then that Soros is looking at the US dollar price of gold which fell because the greenback was the primary beneficiary of the problems with the single currency. It is a common mistake among analysts and market commentators to only watch the US dollar price of gold. Another example of gold functioning as a safe haven and store of value in times of monetary distress can be seen in Japan where deliberate attempts to weaken the value of the yen have sent gold back towards its all-time highs. Of course, in reality it is not the price of gold which has changed but rather the purchasing power of the Japanese yen.
The gold price ticked lower against the US Dollar early Monday, but held onto the bulk of Friday’s sharp rally at $1577 per ounce as world stock markets rose alongside commodities.
Silver bullion traded at $27.30 per ounce, some 2.5% above last week’s 9-month low, while both Sterling and the Euro extended their gains versus the US currency, pushing the gold price below £1030 and €1215 per ounce respectively.
Major-government bond prices eased back, but Portugal’s 10-year borrowing costs nudged up to 6.40% after a court in Lisbon today rejected a plan to suspend state-salary and pension payments for one month.
Prime minister Pedro Passos Coelho responded by vowing a new round of spending cuts as he seeks to meet the terms of 2011′s bailout by Eurozone partners, the International Monetary Fund and the European Central Bank worth €78 billion.
Head of the IMF Christine Lagarde today called the Bank of Japan’s new $1.4 trillion program of quantitative easing “a welcome step”.
What one Japanese fund manager calls Tokyo’s “bazooka” has seen the Nikkei stock index rise 9.9% over the last four sessions.
“[Gold] has disappointed the public,” says currency speculator and hedge-fund manager George Soros, speaking to the South China Morning Post, “because it is meant to be the ultimate safe haven.
“But when the Euro was close to collapsing in the last year…gold was destroyed as a safe haven, proved to be unsafe…Gold is very volatile on a day-to-day basis [with] no trend on a longer-term basis.”
Daily volatility in the US Dollar gold price has averaged less than 20% over the last 5 years. The S&P stock-market index shows average volatility of 21%.
Soros called gold “the ultimate bubble” in February 2010. Rising 75% over the following 18 months, its price stands more than 43% higher today.
“There is still strong physical demand with the gold price below $1600,” says the latest Commodities Quarterly from Standard Bank’s analysts, pointing to their Gold Physical Flow index, which remains well above both the 2012 and four-year average levels for the year so far.
Trimming their 2013 average forecast from $1720 per ounce to $1700, “We still view the two dominant drivers for gold as real interest rates and global liquidity,” the Standard Bank team go on, noting a near-2% rise in central bank reserves worldwide year on year.
“Our supply and demand forecast implies [a] tight [market] as well as a decline in supply in the long term.”
Looking at the price charts, however, “Gold is still in a bearish trend,” says Friday’s note from technical analysts at bullion bank Scotia Mocatta, “with support at the base of the massive 18-month consolidation pattern, in the $1522 area.
“Should we break through, it will open up a move to the $1300 level.”
Looking at positioning by professional money-managers and speculators in gold futures, “Much of the downside is already priced in,” reckons a note from Credit Suisse this morning.
What analysts call the “net long” position of non-industry players in US gold derivatives was little changed at the equivalent of 415 tonnes in the week-ending last Tuesday, new data from US commodity futures regulators said late Friday.
That compares with a 5-year average of more than 700 tonnes equivalent, and is 60% smaller than the peak hit in August 2011.
As a group, so-called “small speculators” – meaning mostly private traders rather than hedge funds or other managed accounts – now hold fewer than 1.7 bullish contracts for every bet they hold that the gold price will fall.
That compares to a 5-year average of 2.3 and a peak of 3.9 in September 2012.
Adrian Ash | BullionVault