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Physical Gold Demand Strong Below $1500 as Spain's Hidden Debt Adds to Eurozone Crisis

Commodities / Gold and Silver 2011 May 18, 2011 - 12:59 PM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE PRICE OF GOLD rallied against all major currencies on Wednesday morning, hitting $1491 per ounce and rising 1.2% from yesterday's eight-day low as stock and commodity markets also gained.

Spot gold in Euros tracked the Dollar-price rise, continuing to hold inside 3% of December's all-time high as former German chancellor Gerhard Schroeder accused current leader Angela Merkel of being "too hesitant" and "lacking leadership" in the Eurozone debt crisis.

Government-bond yields edged up as debt prices slipped.
Silver prices gained 1% before handing most of it back to trade around $34 per ounce – some 30% below last month's 31-year high.

"Spot gold is about to retest this year's uptrend line at $1478," wrote Commerzbank's senior technical analyst Axel Rudolph in a note on Tuesday.

"This time round [it] should give way."

"We maintain our view that gold should be bought on dips below $1500," counters Marc Ground at Standard Bank in London.

"Investor interest in gold is still relatively strong. Coupled with the strong physical interest we've seen below $1500, this supports our long-term bullish view on gold."

"The demand for physical is rather interesting again," Reuters quotes Afshin Nabavi, head of trading at Switzerland's MKS Finance.

Spot Gold prices "could not break [below] $1470 yesterday, and so a bit of short covering overnight, as well as this demand, has taken us higher."

In the silver market, the iShares Silver Trust – the world's biggest exchange-traded silver ETF – saw its holdings rise by four-and-a-half tonnes as investor demand increased on Tuesday, marking only the fourth addition since falling from a record hoard of 11390 tonnes three weeks ago.

Holding its metal at J.P.Morgan's bank vaults in London, the SLV trust has since shed more than 900 tonnes of silver bullion as its shareholders sold out, a drop of 8% worth some $5.4 billion.

"Silver will probably bounce back at some point (potentially sharply), but for now further falls seem the most likely scenario," writes Daniel Smith, metals analyst at Standard Chartered, in a note to clients.

In the debt markets, meantime, Spanish government bonds fell in price – driving 10-year yields up to 5.37% – after the Financial Times reported research by consultants Freemarket Corporate Intelligence that says Spain may have up to €26 billion of "hidden debt" on the balance sheets of its 17 autonomous regional governments.

That comes on top of the official figure of €115 billion ($163bn), which itself has almost doubled since 2008. In November last year, Madrid imposed deficit limits on the regions, but in January Spain's biggest region, Catalonia, then said that it had missed its 2010 target.

"There's a lack of leadership right now...Someone has to say 'That's enough' more often," said former German chancellor Gerhard Schroeder in an interview Tuesday, criticizing his replacement Angela Merkel's handling of the Eurozone debt crisis.

Berlin cannot justify the cost of new bailout programs to German taxpayers, he says, "unless they force creditors that have made a lot of money on the enormous interest rates for Greece and the others to share the cost."

Now awaiting trial for attempted rape in New York, International Monetary Fund chief Dominique Strauss Kahn should be replaced by someone "at least friendly to traditional German views" reckons Frederik Erixon, director of the European Centre for International Political Economy in Brussels.

"The growing question among politicians in Berlin is why aren't there any Germans in top economic positions...If [German chancellor Angela] Merkel agreed not to put forward a German she would be seen as internally weak."

Italian policy-maker Mario Draghi is set to succeed Frenchman Jean-Claude Trichet as president of the European Central Bank in October, after German central-banker Axel Weber dropped out of the race.

Spot gold prices for UK investors also ticked higher today as the Pound fell to a six-week low following news that only three out of nine Bank of England policy-makers voted to raise interest rates at this month's meeting.

One of the other six members voted to raise the £200 billion "quantitative easing" program instead.

UK consumer-price inflation rose to a 30-month high in April of 4.5%. Bank Rate has now been held at 0.5% since Feb. 2009.

By Adrian Ash

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

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 – and must be verified elsewhere – should you choose to act on it.

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18 May 11, 22:50
Greg - Eurozone

The Eurozone is crock. Germany should bite the bullet now and pull out. The problem is easy enough to understand. You run a good strong econcomy but are responsible for all the other countries in your group but have no control over them! If they go down you go down. Ridiculous. Otherwise known as putting all your eggs in one basket. There would be no Euro crisis if there was no Euro. On top of that Europe ir become a Muslim state because of zero border controls.

19 May 11, 09:39
Euro Disaster Zone

Far from bringing the "prosperity" we were all promised, the euro has brought only poverty, despair, unemployment, bankruptcy and foreclosure to untold millions right around the edges of the continent. In the core countries it is giving rise to inflationary pressures not seen since the 1920s. The people responsible for its (forced) introduction should be tracked down and thrown into prison for a very long time.

19 May 11, 13:58

the only value of the euro is once again to the unelected bankers who understand that whoever controls the money supply controls the people, in this case the people of Europe. This is nothing more than another takeover by the banks.

I agree that Germany needs to bail out of this mess and go back to it's own roots and it's own currency. Germany has a fundamental difference in philosopy as far as work and wealth is concerned for them to be aligned with the southern european states.

This will not end well.

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