{"id":25508,"date":"2011-11-22T08:54:05","date_gmt":"2011-11-22T13:54:05","guid":{"rendered":"http:\/\/countingpips.com\/fx\/?p=25508"},"modified":"2011-11-22T08:54:05","modified_gmt":"2011-11-22T13:54:05","slug":"gold-hits-4-week-low-sovereign-debt-worries-could-spur-gold-rally-but-much-deeper-correction-possible-if-gold-falls-further","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/11\/22\/gold-hits-4-week-low-sovereign-debt-worries-could-spur-gold-rally-but-much-deeper-correction-possible-if-gold-falls-further\/","title":{"rendered":"Gold Hits 4-Week Low, Sovereign Debt Worries “Could Spur Gold Rally”, but “Much Deeper Correction” Possible if Gold Falls Further"},"content":{"rendered":"

London Gold Market Report<\/strong>
\nfrom Ben Traynor<\/strong>
\nBullionVault<\/strong><\/a>
\nTuesday 22 November, 08:30 EST<\/strong><\/p>\n

U.S. DOLLAR prices to\u00a0buy gold\u00a0climbed to $1699 an ounce Tuesday morning London time \u2013 though still 1.5% down for the week so far \u2013 following yesterday’s sharp drop which saw gold fall to a four-week low of $1668.<\/p>\n

Sovereign debt concerns meantime continued to make headlines in both Europe and the US, as Spain saw its borrowing costs rise further and US politicians lamented the deficit super committee’s collapse.<\/p>\n

“[The] $1667.74 [level] underpins [gold] at present,” says Commerzbank technical analyst Axel Rudolph.<\/p>\n

“While trading above it on a daily closing basis, the medium term trend in the gold price\u00a0remains bullish…failure here [though] will most likely be the beginning of a much deeper correction.”<\/p>\n

Silver meantime climbed to $32.03 per ounce \u2013 1.1% off last week’s close \u2013 while stocks and commodities also edged higher, following selloffs on Monday that saw the Dow lose over 2%.<\/p>\n

Gold has now given up its gains for November \u2013 with prices to\u00a0buy gold\u00a0currently below where they started the month.<\/p>\n

On the currency markets, the Dollar lost some ground against the Euro \u2013 though it remains 2.3% up against the troubled single currency since the start of November.<\/p>\n

“Rising near-term uncertainty should be positive for gold,” says a note from UBS today.<\/p>\n

“Particularly if it hurts the US Dollar, though it is not clear whether the US debt issue will manage to distract investors from their fixation on Europe.”<\/p>\n

Spain paid an average yield of 5.11% earlier today when it auctioned three months Treasury bills \u2013 twice what it paid last month.<\/p>\n

“Lower prices and higher yields are scaring investors rather than attracting new demand,” says Gianluca Salford, fixed income strategist at JPMorgan Chase in London.<\/p>\n

Spain paid an average yield of 6.97% last Thursday when it sold \u20ac3.56 billion of 10-Year government bonds. Quoted 10-Year yields, however, fell that day (though they have subsequently risen, hitting 6.6% this morning).<\/p>\n

The Financial Times explains that Spain asked data providers Bloomberg and Thomson Reuters to disregard the new bond when quoting their 10-Year benchmark yields and reference an older issue instead.<\/p>\n

Monday evening brought confirmation that the US congressional ‘super committee’ has failed to reach an agreement on how to cut the country’s deficit by $1.2 trillion over 10 years \u2013 with President Obama blaming Republicans’ refusal to consider tax increases.<\/p>\n

“They simply will not budge from that negotiating position,” Obama said.<\/p>\n

“So far that refusal has been the main stumbling block that has prevented Congress from reaching an agreement to further reduce the deficit.”<\/p>\n

“It is really discouraging,” says former White House budget director Alice Rivlin \u2013 who has previously said Congress should be looking for $4 trillion in deficit cuts.<\/p>\n

“They could not agree even on the smaller challenge of $1.2 trillion…I do not see a way to get to the big deal before the [presidential] election [next year].”<\/p>\n

Despite the talks’ collapse, all three major ratings agencies reaffirmed their respective sovereign credit ratings for the US. Moody’s, however, maintains a negative outlook, while Fitch \u2013 which said in August that super committee failure would likely lead to “negative rating action” \u2013 is due to complete a review of its US rating by the end of the month.<\/p>\n

“[The] super committee’s budget impasse still has potential to spur a gold rally,” said a note from HSBC this morning.<\/p>\n

“Emerging market and central bank buyers may take advantage of further drops [to\u00a0buy gold] as they did in September.”<\/p>\n

Here in the UK, public sector net borrowing fell to \u00a33.4 billion in October \u2013 down from \u00a311.4 billion the previous month \u2013 data published this morning show. Despite the fall, however, forecasts due to be published next week by the Office for Budget Responsibility will suggest the government is behind schedule on its deficit-cutting targets, the FT reports.<\/p>\n

China \u2013 the world’s second-largest source of private gold demand \u2013 could post its first trade deficit for two decades in 2012, according to Xia Bin, an academic adviser to the People’s Bank of China, the country’s central bank.<\/p>\n

“The US economy won’t be good next year and Europe will be worse, meaning weak external demand for China,” Xia told news agency Reuters on Monday.<\/p>\n

Xia has repeatedly called for the PBOC to\u00a0buy gold\u00a0with its foreign exchange reserves.<\/p>\n

In India meantime, a working paper from the central bank, the Reserve Bank of India,\u00a0last month suggested\u00a0that India too should look to again\u00a0buy gold\u00a0for its official reserves \u2013 and add to the 200 tonnes it bought from the International Monetary Fund in 2009.<\/p>\n

The volume of gold held by gold-backed exchange traded products meantime \u2013 which include the major\u00a0gold ETFs\u00a0\u2013 hit an all-time high of 2339.97 tonnes last Friday, according to data compiled by news agency Bloomberg.<\/p>\n

Ben Traynor<\/strong>
\nBullionVault<\/strong><\/p>\n

Gold value calculator \u00a0\u00a0| \u00a0\u00a0Buy gold online at live prices<\/strong><\/a><\/p>\n

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.<\/p>\n

(c) BullionVault 2011<\/p>\n

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events \u2013 and must be verified elsewhere \u2013 should you choose to act on it.<\/p>\n","protected":false},"excerpt":{"rendered":"

U.S. DOLLAR prices to buy gold climbed to $1699 an ounce Tuesday morning London time \u2013 though still 1.5% down for the week so far \u2013 following yesterday’s sharp drop which saw gold fall to a four-week low of $1668.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-25508","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/25508","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=25508"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/25508\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=25508"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=25508"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=25508"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}