New York 11/07/2011 - Gold on the Comex division of the New York Mercantile Exchange was propelled to a two-week high Monday as concerns over US and European debt had investors fleeing currencies and riskier assets.
Gold futures for August delivery in New York were last up $6.30, or 0.4 percent, at $1,547.90 per ounce; however, the yellow-metal has since come off its intraday high of $1,557.60 due to some afternoon profit taking.
The markets are closely watching the bubbling debt situation in Italy. The country's credit default swaps climbed 13 percent to 281 basis points this morning, while its debt-to-GDP ratio now stands at 120 percent - second only to Greece within the eurozone. An emergency meeting of European policy makers started today in Brussels to discuss Italy's problems.
These jitters led to euro to fall by about three cents to a low of 1.3983 against the dollar. Often times, a stronger greenback would lead to lower gold prices; however, in this case, the dollar seemed to merely benefit from the euro's weakness and not its own strength, market participants said.
“Gold has shown a pattern of re-establishing itself as alternative currency on days when Europe's credit woes reappear. This overall nervousness and resulting safe-haven demand has more than offset the slowdown we've seen in physical gold demand,” a US-based fund manager.
“Neither the governments across Europe nor Congress [in the US] have shown the political will needed to get their houses in order. People will keep buying gold until these central bankers and politicians start exhibiting some true leadership,” he added.
The macroeconomic news out of the US of late has also been pretty grim. Non-farm payrolls increased by only 18,000 last month, the weakest reading since September and well below expectations of a 97,000 gain, the Commerce Department reported on Friday.
The ratio between employment and the population declined to 58.2 percent, which is the lowest level ever recorded.
Additionally, talks on the US federal budget have broken down after the Republicans refused over the weekend to agree to a compromise spending plan that included tax increases. Congress has until the end of the month to raise its $14.3 trillion debt ceiling before risking a credit event.
And inflation figures from China released over the weekend also boosted precious metals inflows amid fears of rising prices. CPI last month, at 6.4 percent, was up from 5.5 percent previously, while PPI rose to 7.1 percent from 6.8 percent previously.
“Chinese inflation rates seem to be accelerating… we do not think the price increases will level out anytime soon,” MF Global's Ed Meir noted. “This means that inflation rates could spike again in July, leading to further Chinese tightening.”
In gold specific news, Comex net speculative length last week fell by 23.9 tonnes and now stands at 601.6 tonnes, which is below last year’s average of 777.6 tonnes. Net longs dropped by 18.0 tonnes, while shorts rose by 5.9 tonnes.
“Although we still feel that, from a fundamental perspective, there is potential for further upside over the medium term, we would beware of the build-up of speculative short positions,” Standard Bank said in a note.
“Currently, speculative short positions are at 129.0 tonnes, well above last year’s average (90.7 tonnes), indicating a market that is less supportive - which could see the gold price more vulnerable to shifts in investor sentiment,” the analysts added.
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