Gold Breaches $1590 after Weidmann Says "Eurozone Crisis Not Over

By: Ben_Traynor

AFTER trading sideways for several sessions, gold bullion jumped above $1590 an ounce for the first time this month Tuesday morning in London, in what analysts called a "technical" move after gold broke through a key level following remarks from Bundesbank president Jens Weidmann.

"We see support at the bottom of the sideways range at $1561 and resistance at the top at $1586," said yesterday's technical analysis note from Scotiabank.

Gold rose above that level however shortly after Weidmann told reporters that the Eurozone crisis "is not over" and said that the Eurozone has "declining inflation risks".

Weidmann was presenting the German central bank's 2012 results, which show it more than doubled the amount it holds in reserve for what Weidmann called "risk provisioning".

Silver meantime rose to $29.25 an ounce this morning, still below last week's high, as other commodities were broadly flat on the day and US Treasuries gave up earlier gains.

European stock markets were also flat, a day after US markets rallied and the Dow Jones set another new record, having beaten its 2007 nominal peak last week.

Gold in Sterling meantime hit a five-week high above £1070 an ounce as the Pound fell this morning, while gold in Euros rose to a two-week high above €1225 an ounce.

"We still doubt a sustained rebound [in gold] is warranted at this point while the market is set to remain depressed," says Andrey Kryuchenkov, analyst at VTB Capital.

"Strong physical demand in China is the main reason behind gold's resilience," one trader in Beijing told newswire Reuters this morning.

"But the overall sentiment in prices is still weak. If demand from China weakens and we continue to see good US [economic] data and a stronger Dollar, gold has the chance to test $1500 this year."

On February 18, the first trading after Lunar New Year, volumes on the Shanghai Gold Exchange for its most popular gold contract, The Au9999, set a new record of just over 22 tonnes. Since then, daily Au9999 volumes have been more than double last year's average.

China was the world's second-biggest gold consuming nation in 2012, according to the latest data from the World Gold Council.

In world number one India meantime "there is no demand [for gold right now] due to financial year closing," according to Haresh Acharya at bullion wholesaler Parker Bullion in Ahmedabad.

Holdings of bullion backing gold exchange traded funds tracked by Bloomberg meantime continued to fall yesterday, the fifteenth straight day of net outflows.

In Washington, Congressman Paul Ryan is campaigning for the support of his fellow House of Representatives Republicans for his plan to balance the federal budget in a decade. Even if the plan is passed by House however it is not expected to win a vote in the Democrat-controlled Senate.

Senate Democrats meantime, who are expected to unveil an alternative budget plan this week, yesterday put forward plans to prevent a so-called government shutdown currently scheduled for 27 March, Reuters reports.

The bill contains adjustments to spending aimed at ensuring government agencies are funded to the end of September, but does not seek to make up for the $85 billion in government spending cuts known as the sequester that came into effect March 1 and was originally agreed as part of the 2011 debt ceiling deal.

Across the Atlantic, UK manufacturing production fell 3% in the year to January, more than analysts were expecting, according to official data published Tuesday.

"Unless we have a stellar performance from the services sector, we're almost certainly in a triple dip [recession]," says London-based Scotiabank economist Alan Clarke.

Sterling fell to a fresh low against the Dollar this morning, touching $1.4831, its lowest level since July 2010.

The Bank of England's Funding for Lending scheme, which seeks to lend to banks at low rates so that they can provide credit to small and medium enterprises, should be put "on steroids" according to Britain's deputy prime minister Nick Clegg.

By Ben Traynor
BullionVault.com

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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.(c) BullionVault 2013

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