Adrian Ash: PRICES to buy gold with Dollars rallied from their lowest levels since late August on Wednesday morning in London, recovering 0.7% from yesterday’s drop to $1662 per ounce.
The drop came as Greece was upgraded Tuesday by the S&P ratings agency from “selective default” to “junk” status, following payment of the latest €34.3 billion in new loans from Greece’s Eurozone partners.
Versus the Dollar the Euro leapt to its highest level since May. The gold price for Eurozone investors sank to €1255 per ounce – a 6-month low almost 10% beneath October’s new record high.
“Gold on any kind of historic market basis is overdue for a nice correction,” CNBC was told by investment author and commodities-fund manager Jim Rogers overnight.
“It’s been correcting for 15-16 months now, which is normal in my view. It’s possible that gold’s correction is going to continue for a while longer.”
Tuesday saw a switch from January to February contracts in a large number of short (ie, bearish) bets on the gold price held by leveraged speculators in the US derivatives market.
Holdings at physically-backed gold trust funds traded on the stock market rose to new all-time records, according to Bloomberg.
Users of BullionVault also moved to buy the drop in prices, with previously quiet trade growing strong as gold fell Tuesday.
“Good support is seen at $1672.50 [and then] $1661.64,” says Commerzbank’s Axel Rudolph in Frankfurt in his weekly chart analysis.
“Failure at [those levels] would push the June high at $1641.01 back to the fore and neutralise our bullish outlook.
Silver prices meantime bounced off a 6-week low at $31.40 per ounce Wednesday morning, as world stock markets reached 17-month highs on Reuters’ data.
Long-dated US bonds also ticked higher, nudging 30-year Treasury yields back below 3.00% per year.
US Republican speaker Boehner meantime referred to a “Plan B” for $1-million earners in the ongoing argument over 2013’s looming fiscal cliff.
A blog on The Economist website says Democrat president Obama has agreed to switch the Consumer Price Inflation index tracked by Social Security payments to a lower measure, resulting in slower benefit rises.
Over in Japan, a small but growing number of pension funds are buying gold as a hedge against zero-bond yields and the long-term decline in equities, says a report in today’s Wall Street Journal.
“By diversifying currencies, we aim to reduce risks associated with them,” the WSJ quotes Yoshi Kiguchi, chief investment officer at Okayama Metal & Machinery Pension Fund.
It began investing in gold this March on behalf of the 260 small and mid-sized company pension schemes it runs.
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver vaulted in Zurich for just 0.5% in dealing fees.
(c) BullionVault 2012
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Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Silver Trust (NYSEARCA:SLV), iShares Gold Trust (NYSEARCA:IAU), ETF Securities Swiss Gold Trust (NYSEARCA:SGOL), Ultra Gold Trust (NYSEARCA:UGL).