247Bull.com Editor: Although the near-term outlook for gold is still negative, nothing in the longer-term picture has changed. Ben Bernanke and his counterparts around the world are doing their best to prevent their credit edifice from collapsing. Right now they are managing to do so, but ultimately their efforts will cause a crisis even greater than the one that hit in 2008. As Ben Davies, CEO of Hinde Capital, noted last month, “the only question is will credit collapse or will money inflate too much. It is binary – we will see deflation or high inflation – there will be no middle ground.”
Spot gold fell towards three-week lows Tuesday, dropping as low as $1423 per ounce, as the Euro also fell against the Dollar after comments from those attending today’s Eurozone finance ministers’ meeting appeared to show disagreement over the creation of a banking union.
Days after Germany’s DAX index set a new record high, European stock markets extended yesterday’s losses this morning.
“Due to US Dollar strength and record levels in European shares, gold has been losing its ‘safe haven’ appeal in recent days,” says a note from German-based refinery group Heraeus.
Gold in Euros meantime dipped briefly below €1100 an ounce, while gold in Sterling fell below £935 an ounce.
Silver meantime fell to the lower end of its range for the past three weeks, dropping below $23.50 an ounce, as other commodities also dipped lower.
US Treasuries gained while German Bund prices fell.
The Eurogroup of single currency finance ministers were expected to discuss the creation of a banking union – which would include deposit guarantees and supranational supervision of financial institutions – as part of their meeting today in Brussels.
“We want a single European resolution regime,” European Central Bank executive board member Joerg Asmussen said, “together with a single resolution agency and a single resolution fund that is financed by a levy from the banking industry. This should come into place in parallel with the single supervisory mechanism hopefully by the summer of next year.”
Shortly after Asmussen’s comments were reported the Euro gave up today’s gains against the Dollar, dropping back below $1.30.
In contrast with Asmussen’s comments, German finance minister Wolfgang Schaeuble told reporters a day earlier that existing European treaties “don’t give enough foundation for a European [banking] restructuring authority”.
“You can do the same thing very well with a network of national authorities,” Schaeuble added.
“We should go as far as possible within the current treaties,” countered French finance minister Pierre Moscovici, “and then think about what could require a change in treaty. Our belief is that we can go very far.”
“The Germans are putting forward understandable questions which will have to be dealt with,” added Eurogroup president and Dutch finance minister Jeroen Dijsselbloem.
“But I don’t see why that would stop us making progress on the banking union.”
Ireland meantime may seek to use the ECB’s Outright Monetary Transactions program – whereby the ECB pledges to buy government bonds on the secondary market to prevent a sharp rise in borrowing costs – as it exits its bailout, the country’s finance minister said Monday.
“We haven’t decided in government yet whether we will apply or not,” said Michael Noonan, “but it is something that seems to be a mechanism that is working very well.”
The supply of scrap gold sent to refineries is expected to drop 4% this year compared to 2012, according TD Securities. The Toronto-based brokerage says around 1550 tonnes of scrap gold will be recycled during 2013, the lowest total since 2008, Bloomberg reports.
Last month saw gold’s biggest two-day drop in three decades.
“A lot of people were shocked,” says Arthur Abramov, owner of cash-for-gold business Manhattan Buyers Inc., which saw its monthly volume of gold recycled fall by 40% to 300 ounces.
Over in India, yesterday’s Akshaya Tritiya festival, viewed as an auspicious day to buy gold, saw an increase in gold jewelry sales compared to last year, according to local press reports.
“Sentiment of gold buying has turned positive,” says Haresh Soni, chairman of the All India Gems & Jewellery Trade Federation, adding that he expects gold sales for yesterday to show a 20-25% increase on last year’s festival.
Ben Traynor | BullionVault