Posts Tagged central banks
A machine engraves information on an ingot of 99.99 percent pure gold at the Krastsvetmet nonferrous metals plant in Russia’s Siberian city of Krasnoyarsk, March 28, 2011.
Credit: Reuters/Ilya Naymushin
NEW YORK (Reuters) – Gold rose nearly 2 percent on Wednesday and posted its biggest three-day rally in more than a month, with investors piling into bullion as a hedge against currency depreciation after central banks boosted liquidity for lenders.
Bullion rose on a wave of economic optimism after top global central banks led by the Federal Reserve and the European Central Bank acted jointly to allow European banks to borrow U.S. dollars on easier terms. the S&P 500 surged 3.5 percent and copper, an economic barometer, soared 5.5 percent.
Gold, a traditional safe haven, has recently tracked riskier assets such as equities. the correlation between bullion and the S&P 500 has risen to its tightest positive link in a year.
“You are seeing an enhancement of the loose monetary situation around the world and continued currency devaluation, and that’s what causing the rise in gold today,” said Michael Cuggino, portfolio manager of the Permanent Portfolio Funds.
Spot gold rose 1.8 percent to $1,745.89 an ounce by 2:31 p.m. EST, after hitting a two-week high of $1,749.63 earlier in the session.
Wednesday’s rally lifted bullion’s performance in November into positive territory, up almost 2 percent for the month.
U.S. gold futures for February delivery settled up $31.40 at $1,750.30. Volume came in line with its 30-day average, consistent with average or above-average turnover in the last 10 days.
“Gold is moving higher alongside every other risk asset, which is a bullish sign,” said Adam Sarhan, CEO of Sarhan Capital.
The 25-day correlation-log between gold and the S&P 500 rose to 0.7, reflecting their tightest positive link in a year. (Graphic: r.reuters.com/duw35s )
Technical buying also supported prices as the metal broke above its 100-day average to reclaim the key support it had breached early last week.
“If gold can break above its recent highs and resistance at $1,800 an ounce, it’s in for another leg higher,” Sarhan said.
Daniel Hwang, senior technical strategist at FOREX.com, said gold will face considerable trendline resistance near $1,770 an ounce. A break above that will open the door for a test of $1,800 and possibly $1,900 an ounce, Hwang said.
COMEX gold options floor trader Jonathan Jossen reported a sizable COMEX floor order that involved selling two April $2,100 call options with the buying of each $1,800 April call. the so-called “bull call spread” strategy is seen bullish for the underlying gold futures.
The 25-day implied volatility in gold options, a gauge of bullion market risk, has fallen to its lowest in around a month, indicating some investors expect the recent range-bound trade in the underlying gold futures to continue, traders said.
Silver rose 2.9 percent to $32.83.
CHINA LOWERS RESERVE RATIO
Earlier in the session, gold had reversed losses after China moved to ease credit strains by cutting the reserve requirement ratio for its commercial lenders for the first time in nearly three years.
The move by the world’s biggest consumer of copper also sharply lifted the bellwether industrial metal and helped confirm gold’s status as an inflation hedge, traders said.
Also boosting gold-buying sentiment were surging U.S. pending home sales in October and news U.S. private-sector job growth accelerated in November, prompting some economists to raise their forecasts for Friday’s more comprehensive U.S. government labor report.
Platinum climbed 1.4 percent to $1,552 and palladium gained 4.3 percent to $608.50 an ounce. 2:31 PM EST LAST/ NET PCT LOW HIGH CURRENT
SETTLE CHNG CHNG VOL US Gold FEB 1750.30 31.40 1.8 1704.30 1754.70 167,888 US Silver MAR 32.804 0.854 2.7 31.120 32.995 45,876 US Plat JAN 1560.80 20.10 1.3 1513.00 1563.40 10,808 US Pall MAR 612.60 28.35 4.9 571.00 628.00 5,343
Gold 1745.89 31.60 1.8 1701.15 1749.63 Silver 32.830 0.940 2.9 31.140 32.930 Platinum 1552.00 21.01 1.4 1515.50 1558.00 Palladium 608.50 25.01 4.3 571.83 622.50
TOTAL MARKET VOLUME 30-D ATM VOLATILITY
CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 188,987 182,015 194,401 26.09 -0.34 US Silver 50,476 60,067 79,725 44.01 -1.16 US Platinum 11,501 6,290 7,178 31 -3.00 US Palladium 5,596 5,118 4,430
Last week gold managed to climb above the $1,750 per ounce mark on the back of the co-ordinated move by central banks to boost liquidity. when the US Federal Reserve allowed central banks to swap their own currencies for US dollars, the dollar fell and gold benefited.
Despite the increase in gold prices, Chinese demand continues to be just as high. although the Chinese government keeps very quiet about its gold reserves it is believed that China holds in excess of 33.89 million fine troy ounces as its reserves and that this is increasing rapidly. In 2007, China overtook South Africa as the world’s largest gold producer and China has been making the most of this cost advantage.
The Chinese however, are also in need of monetary support after The People’s Bank of China made it easier for banks to lend more money, by cutting the level of reserves the banks have to hold. over the past week, China’s central bank has had to intervene in the currency markets, but for once, it’s not been acting to keep the Renminbi weak against the dollar. The blame lies with China’s property bubble which seems about to burst. The good news is that China’s attempts to prop up the market appear to be working; but the bad news is that investors are beginning to realise that the Reminbi can fall as well as rise.
Also underpinning the gold price was the continued buying by central banks. South Korea is the latest bank to buy gold in an attempt to diversify its foreign reserves and protect against financial instability. a number of banks have disclosed information about their continuing gold purchases; these include Thailand, Russia and Bolivia. although gold seems to have currently lost its status as a safe-haven asset, increased demand from central banks is supporting gold prices.
EU leaders will be meeting in Brussels this morning (08/12/11) in order to try and agree on a deal to tackle the Euro Zone debt crisis. most investors and analysts have labelled this the ‘do or die’ moment for Europe. it is now apparent that any solution must be credible and enduring; the markets will no longer be fed drips and drabs of false hope. one way or another, EU leaders must announce a viable plan.
Chancellor Merkel and President Sarkozy are calling for renewed contracts between countries that enforce budgetary discipline with automatic penalties for those who overspend. However, similar sanctions were previously included in the contracts and those clearly weren’t enforced, so how much difference will this really make?
After Standard and Poor’s put all Euro zone countries on credit watch it seems that the main focus is on restoring market confidence and as such EU leaders appear to be hardening their positions. However, if the EU is to survive in the long run there needs to be improved solidarity and collective fiscal union.
The ECB (European Central Bank) has cut its main interest rate back to 1% ahead of the EU Summit. unfortunately, this is much of the same from the ECB and it doesn’t have the authority to do what is necessary to stop the debt crisis worsening. Italy and its debts are too big to be rescued by other governments so instead the attention continues to circle back to whether or not the ECB will have to surrender and print money. of course gold would benefit from this, as people would seek to invest in gold again, in search of safe-haven assets and protection from inflation.