Goldline International - Daily Commentary

Gold Drops on Stronger Dollar

Gold prices kicked off the week down nearly 3% on a stronger dollar as continued worry over the Eurozone debt crisis plagued the financial markets. These concerns follow last week’s agreement by EU leaders to increase fiscal discipline for all 27 members of the Eurozone. The agreement was largely a disappointment for investors who anticipated a more substantial solution to the crisis,. Despite today’s sell-off, Reuters reports there is “continued evidence of investor demand for gold, as highlighted by the rise in speculative holdings of gold futures…” Gold holdings rose last week by half a million ounces. (Reuters, 12/12/11)

Worries over Europe pushed U.S. equities lower Monday. Equities were also lower on news that Intel slashed its revenue forecast. Today’s sell-off follows Friday’s rally in response to the European leaders’ deal for a new intergovernmental treaty. "The agreement last week is a long-term positive, but it really doesn't solve the immediate problem," said Peter Cardillo, chief market economist at Rockwell Global Capital.

Further pressuring stocks Moody’s announcement that it would review the ratings for European sovereign debt. Moody’s said Friday’s plan by European leaders offered “few new measures” to stem the euro-zone debt crisis. "Moody's believes that the system remains prone to further shocks, which would likely lead to selective rating changes," wrote Moody's analysts, according to CNN Money. (CNN Money, 12/12/11)

EU Talks: Leaders Balance Rescue and Reform

Gold traded higher on Friday as the euro rose and the dollar fell. Currencies reacted to the news that a new Chinese investment vehicle could provide additional funding to troubled euro zone economies and help ease the region's debt crisis. The ensuing weakness in the dollar supported the gold price which rose to $1715.30 per ounce on the New York Spot Market by 10:30 AM Pacific Time. Silver was also higher at $32.31 per ounce.

The European Union (EU) failed to secure the agreement among its 27 members for a new pact requiring stricter financial coordination between countries, a step that would require changes to EU treaties. Instead, at least 23 of members, including all euro-zone nations, agreed to tighten fiscal rules. "We’re doing everything we can to save the euro," French President Nicolas Sarkozy said on Friday.

VTB Capital analyst Andrey Kryuchenkov said the EU leaders "need to convince the market that the crisis can be contained. Gold is trading completely against the dollar, moving in the opposite direction," he said, noting that physical investors seem to be waiting on the sidelines. Commerzbank analysts wrote in a note, "...we do not believe gold's long-term upwards trend to be under threat."

(Sources: "Tensions Rise at EU Summit," Wall Street Journal, December 9, 2011; "Gold edges lower in choppy Asian session," MarketWatch, December 9, 2011; "PRECIOUS-Gold rises as euro recovers, cautious over EU," Reuters, December 9, 2011)

Rob McEwen: Gold Will Reach $5,000

Gold prices are lower on the New York Spot Market as of 8:12 a.m. PST on waning confidence over a resolution to the European debt crisis. Standard & Poor’s issued a warning that it could potentially downgrade Eurozone nations, including Germany and France, if a plan to tackle the crisis does not emerge soon. An EU summit in Brussels is scheduled for Friday and analysts say if the summit falls short, a harsh market reaction may follow. "The market is currently being driven by politics and particularly by development in the euro zone. I expect there is now some caution with the meeting on Friday and the ECB meeting on Thursday," Peter Fertig, a consultant at Quantitative Commodity Research, said. (Reuters, 12/06/11)

S&P’s warning is pressuring U.S. stocks as investors await the outcome of this week’s policy meetings in Europe. "The impact of the [S&P] move though comes from its timing--just when M. Sarkozy and Frau Merkel were trying to conjure up yet another rabbit from their hat to save the euro," said Societe General analyst Sebastien Galy in a note to investors, according to CNN Money. 15 out of 17 Eurozone members are now on “creditwatch negative,” which indicates a 50% chance of a downgrade within the next 90 days. (CNN Money, 12/06/11)

Rob McEwen, Chairman and CEO of US Gold Corp. and Minera Andes Inc., says gold prices are going to more than double before the bull market in precious metals is over. Speaking to a reporter from Stock to Buy, McEwen emphasized the importance of gold in a properly diversified portfolio. “Gold is money. People invest in it to protect their other investments,” McEwen said. “By the time it peaks, I think it’ll be at $5,000 an ounce.” (Stock to Buy, 12/06/11)

Gold’s 4% Rally Spurs Profit-Taking, Europe in Focus

Gold prices are lower on the New York Spot Market as of 8:12 a.m. PST on profit-taking as investors took advantage of last week’s 4% rally in gold. According to The Street, “There are many reports swirling about major financial initiatives to help stabilize Europe. European central banks, through the European Central Bank, could lend up to 200 billion euros to the International Monetary Fund, which could then lend that money back to weaker European governments. The Federal Reserve could also be prepping to lend more money to the International Monetary Fund along with the ECB.”

After cutting rates by 0.25% at its last meeting, the ECB is widely expected to issue another rate cut when it convenes on Thursday. "Our economists anticipate a rate cut of 25 basis points to 1%," says CommerzBank. "This should lend support to the gold price since the opportunity costs of holding gold will remain low." (The Street, 12/05/11)

Optimism over progress in stemming the European debt crisis is driving U.S. stocks higher, lead by bank stocks at the start of a pivotal week for Europe. Eurozone leaders meet this week for another summit to talk about rewriting European Union treaties. "This week will likely see either an agreement to bind Eurozone nations' fiscal policies together with irrevocable, enforceable institutions or the beginning of the end for the single currency," said Brian Dolan, chief currency strategist at Forex.com. According to CNN Money, “French President Nicolas Sarkozy and German Chancellor Angela Merkel met Monday morning in Paris and agreed on a new pact they say will enforce fiscal discipline in the Eurozone and prevent another debt crisis in the future.” (CNN Money, 12/05/11)

Jobs Report, Euro Zone Optimism Boosts Gold

Gold traded higher on Friday on an encouraging jobs report from the United States and signs that euro zone policymakers are closer to resolving the debt crisis. The U.S. unemployment rate fell to a 2-1/2 year low of 8.6 percent in November and companies stepped up hiring, suggesting the economy is possibly gaining momentum.

Also boosting gold prices was widespread investor expectation that a European summit next week could bring workable solutions to the euro zone sovereign debt crisis. France and Germany are expected to outline joint proposals for the meeting on Monday. (Reuters, 12/2/11)

An additional supportive factor for gold was the news that Bank of Korea bought 15 tons of gold in November. "Even after this purchase, gold accounts for less than 1% of the country's currency reserves, meaning that further purchases are likely to follow," wrote Commerzbank. Central bank purchases reached 148.4 tons by the end of the third quarter and could reach 450 tons by year's end, according to the World Gold Council. This is a big transition from a few years ago when central banks were net sellers of gold. (TheStreet, 12/2/11)

Gold at 2-Week High on Central Banks’ Action

Gold prices are at 2-week highs after Wednesday’s action by the world’s largest central banks to loosen credit markets and provide more dollar liquidity. Beginning December 5, the central banks will reduce the cost of existing dollar swap lines by 50 basis points through February of 2013. According to UBS analyst Edel Tully, "There is a twofold impact on gold from the joint policy response from central banks. First, a substantial increase in the demand for dollar swap facilities would mean further expansion of the Fed's balance sheet, if lending is not sterilized, and would effectively be another form of easing. The downward pressure this puts on the dollar is clearly to gold's benefit… “Second, to the extent that the cheapening of dollar funding costs limits the possibility of a liquidity crunch, it is also beneficial for gold.” (Reuters, 12/01/11)

U.S. stocks are lower after yesterday’s rally which was spurred by the central bank action to increase global liquidity. "The coordinated move was welcomed by the market, but the fact that central banks saw the need for such measures confirms how serious the bank funding situation is," Gary Jenkins, head of fixed income at Evolution Securities, said in a research note. "Though it is clearly helpful and should ease some of the tension in money markets it does not alter the underlying problem with European sovereign debt," he added.

Also pressuring equities was the latest report on the health of the U.S. job market. The government said today the number of people filing for initial unemployment benefits rose by 6,000 to 402,000. The monthly jobs report is due Friday. (CNN Money, 12/01/11)

Gold Soars on Fed Action, Weaker Dollar

Gold prices surged on the New York Spot Market rising nearly $ as of 9:30 a.m. PDT. Investors acquired the yellow metal following the move by the Federal Reserve and six other central banks to lower the cost of existing dollar swap lines in an effort to create greater global liquidity. According to The Street, “The banks will lower the price on dollar liquidity swaps by 0.5% until February 2013, making it cheaper for other countries and banks to trade in their local currencies for dollars and fund their operations including loaning cash to consumers and businesses.” Commenting on the move, macro and consumer strategist Richard Hastings said:, “Gold has a special talent for sniffing out these imbalances," says Hastings, "as long as this continues gold will continue to rally." (The Street, 11/30/11)

U.S. stocks also moved higher after the central banks' move lifted investor sentiment and provided hope that world leaders could avoid a credit crunch and stem the sovereign debt crisis. "It's the first time we've seen this type of global coordination since November 2008," said Michael James, a senior equity trader at Wedbush Morgan. "The degree of coordination sends a message to the markets that global leaders are going to do whatever they need to do to instill confidence in the markets." (CNN Money, 11/30/11)

Morgan Stanley announced it prefers exposure to gold, silver and livestock in the coming year according to The Economic Times. "Given the low growth environment, we do not feel it is prudent to be long on the commodity complex indiscriminately," analysts Hussein Allidina and Peter Richardson said in a research note dated Tuesday, November 29. (The Economic Times, 11/30/11)

Gold Steady as U.S. Rating Outlook Cut to Negative

Gold prices are up $3.60 today on the New York Spot Market as of 8:50 a.m. PDT as the U.S. dollar fell on hopes that Europe may stem its debt crisis and ratings agency Fitch cut the U.S. rating outlook to negative. Gold was also supported by a stronger U.S. stock market, which reduced investor need to sell metals to cover losses. (Reuters, 11/29/11)

Stocks rallied on Wall Street, extending gains from Monday on optimism that Europe may finally address its debt crisis; however, “Nerves were strained after Moody's warned that 87 banks across 15 of the 17 Eurozone countries could face downgrades and Italy auctioned €7.5 billion of 3- and 10-year bonds that drew the highest yields in years. Borrowing costs in Italy have been above the uncomfortable 7% mark for days,” according to CNN Money. (CNN Money, 11/29/11)

The U.S. has lost its stable outlook from ratings agency, Fitch, which lowered the U.S. to negative on Monday. The rating cut follows the congressional committee’s failure to agree on deficit cuts. The cut reflects, “declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path will be forthcoming,” according to the company. Fitch went on to say the cut makes the probability of a downgrade of the country’s AAA rating greater than 50 percent over two years. (Bloomberg, 11/29/11)

Gold May Reach $2,000 in ‘Near Future’

Gold prices are rallying on the New York Spot Market as hopes emerged that a stronger fiscal union between the 17 nations in the Eurozone would stem the debt crisis and save the euro. According to The Street, “Reportedly Eurozone nations led by German Chancellor Merkel and French President Sarkozy are in talks to create more fiscal unity among those countries on the euro -- that is the austerity measures already agreed to would be enforced by the Eurozone. Countries would, in essence, give up some sovereignty to save the euro.” Investors hope this in turn would encourage the European Central Bank to purchase more sovereign bonds for an extended period of time, effectively becoming the lender of last resort. (The Street, 11/28/11)

U.S. stocks are higher in morning trading with the Dow surging over 300 points as of 11:01 a.m. EST. Optimism over reported progress in the Eurozone and strong Black Friday sales spurred all three indices higher. U.S. retailers reported record sales of $52.4 billion over the Black Friday weekend, a 16% increase from 2010 sales. A warning from Moody’s that the European Debt Crisis could lead to a downgrade of the region’s sovereign debt did little to dampen investor sentiment. (CNN Money, 11/28/11)

Ned Naylor-Leyland, investment director at Cheviot Asset Management, says gold prices will reach $2,000 an ounce in the ‘near future,’ but says volatility in the market will remain. “We’re up 25% for the year despite some pretty big moves in both directions. I suppose the issue is: what are the fundamentals driving the market and what will win,” he said in an interview with Francine Lacqua on Bloomberg Television's "On the Move." Naylor-Leyland went on to say gold and silver
are currencies and that physical buying combined with lack of confidence in fiat currencies will continue to be bullish for precious metals. (Bloomberg, 11/28/11)

Gold May Reach $2,000 by March 2012: Report

Gold prices are lower on the New York Spot Market on a stronger dollar and fresh debt downgrades in the Eurozone. Moody's slashed Hungary's credit rating to junk status following a similar move by Fitch on Portugal, leaving the euro falling and the dollar rising. Italian 10-year bond yields moved back above 7%, a level that eventually required bailouts for Greece, Portugal and Ireland. "The Eurozone is looking worse than the U.S." says Ross Norman, CEO of Sharps Pixley. Norman notes, however, that speculative long positions on the Comex are growing, which he says means traders are rebuilding positions after declines in September. There is "doubt about policy makers' ability to come to a consensus and come up with a proposal that the populous will accept," which he insists will continue to be positive for gold despite short-term volatility. (The Street, 11/25/11)

“U.S. stocks rose Friday, after spending several back-to-back days in the red, as investors returned from the Thanksgiving holiday for a shortened, and likely quiet, trading session,” according to CNN Money. Today’s advance comes after “six straight negative sessions for the S&P 500 and the Nasdaq. The Dow has declined for three sessions in a row.” (CNN Money, 11/25/11)

Gold prices may reach $2,000 an ounce by the end of March 2012, according to Rajan Venkatesh, Managing Director, India bullion, Socotia Mocatta, a part of the Bank of Nova Scotia. "Investor demand has compensated the decline in the jewelry consumption. The rising gold prices, which has boosted the investors appetite, may result in close to 1,000 ton imports of the yellow metal," says Venkatesh. The current US and the Euro zone crisis, he said, will keep the gold prices bullish and they are likely to reach $2,000 an ounce in another 3-4 months. (The Times of India, 11/25/11)