Euro Zone Troubles Affecting Gold Prices

More troubles in Europe. Nothing new, but it’s starting to negatively affect the price of gold. It hadn’t really done that in the past. In fact it was just the opposite.

One group that are still bullish are gold option traders. See the article below for more on that.

Gold eased on Wednesday, briefly slipping below $1,640 an ounce after falling for the past three trading days, as the euro came under pressure from continued worries about the euro zone.

The wider markets displayed heightened risk aversion, with Spanish stocks slipping sharply and shares sliding across Europe, while the single currency came under heavy pressure from concerns over Spain’s budget troubles.

Safe-haven Bund yields were steady on the day, as investors weighed up the impact of the ongoing debt crisis on regional growth, while Germany sold new two-year bonds for a record-low yield.

Spot gold was down 0.3 percent at $1,644.81 an ounce at 1348 GMT, having lost 1.5 percent in value over the previous three trading days. It earlier touched a low of $1,637.39 an ounce, but quickly recovered.

“It still seems well supported below 1640,” VTB Capital analyst Andrey Kryuchenkov said. “Interest is very limited, yet no one is liquidating.”

“Also ahead of Spanish bonds auction tomorrow… the gold book is fairly light,” he added. “ETFs (and) physical (buyers are) absent, so you get dull trading against the dollar, with some profit taking off the April highs.”

Lingering concerns about Spain’s finances added to the cautious tone. While Spain exceeded its target at Tuesday’s debt auction, it paid a stiff premium compared to a month before, boding ill for Thursday’s long-term debt sale.

While gold rose in 2011 in times of elevated risk aversion, it has since reverted to trading in line with other commodities and against the dollar, which is now the haven of choice.

It has also fluctuated along with expectations for U.S. monetary policy, with talk of a fresh round of quantitative easing, which would keep the opportunity cost of holding the metal down, tending to lift the metal.

All eyes are on next week’s meeting of the policy-setting Federal Open Market Committee (FOMC), which will be closely scrutinised for any hints of a third round of QE.

“Gold… could certainly use fresh catalysts from external markets at this stage to shake it out of this stupor,” Edel Tully, a strategist at UBS said.

“But until there is a clear sign as to whether it is taking on a safe-haven or a risk persona, investors are likely to continue keeping participation small and timelines brief. Instead, it’s quite likely that gold will wait and take its next directional cue from the FOMC meeting next week.”


Physicaly demand was light, dealers said. Traders in India, historically the world’s biggest gold consumer, stayed on the sidelines as spot prices recovered and the rupee weakened.

“We are seeing very little demand from the physical dealers (or) investors, it’s pretty much come to a standstill,” Afshin Nabavi, head of trading at MKS Finance, said.

Shorter-term speculators in U.S. gold futures have cut their exposure to the metal to their lowest in a month, while flows of gold in and out of exchange-traded products (ETPs) have stagnated over the past two months.

Options on shares in the SPDR Gold Trust, the world’s largest gold-backed ETP, show investors are betting on a rising underlying gold price.

SPDR Gold Trust options maturing this Friday show most open interest is gathered in call options, which give the owner the right, but not the obligation, to buy shares at a pre-set price, at a strike price of 165.0 a share.

This equates to an underlying spot price of $1,699 an ounce.

Based on combined open interest in SPDR calls and puts, the largest bet investors are taking are on shares moving to 160.0 a share by Friday, which is equivalent of a spot gold price of roughly $1,648 an ounce, which highlights some of the lack of any strong investor conviction in gold right now.

For all the absence of conviction in the gold market at present and the 1.3 percent fall in price in April, gold has outperformed both silver and platinum so far this month.

Spot platinum was up 0.2 percent on the day at $1,579.69 an ounce, while palladium, was up 0.4 percent at $660.20. Silver was down 0.3 percent at $31.59.

See Reuters for the entire story


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