ECB Comments Lift Gold, Euro, Stocks Posted by James Randolph on July 25, 2012
July 25, 2012 – The price of gold gained on Wednesday after a European Central Bank
policymaker, Ewald Nowotny, said he could see grounds for giving Europe’s rescue fund
a banking license, which brought the euro off recent lows against the dollar and provided
a boost for stock markets.
A banking license for the European ESM bailout fund would give it the
opportunity to get ECB funding cheaply. This is particularly prescient with recent worries on the part of investors who have been concerned that if Spain requires a full sovereign bailout it will diminish the capacity of the European fund to deal with the debt crisis.
Because physical demand has been weak in recent months, with gold trading in a
tight band for the second quarter, gold is particularly sensitive to moves made in financial markets. Among markets seen as particularly affecting gold, according to Reuters, are the strength of the US dollar in currency markets and the appetite for risk in overall markets.
The spot price of gold gained 0.6 percent to $1,589.71 per troy ounce as gold
futures for August delivery gained $12.90 per troy ounce to $1,589.10.
Gold has stayed in a $75 band in July, the narrowest monthly spread since April.
Relatively slow buying in Asian markets, investor hesitancy, and slowing activity in
gold-backed exchange-traded funds have contributed to limited gains in price.
Analysts with Credit Suisse believe there are much more interesting times for
gold ahead, particularly in the four to six weeks range. While physical demand is still
relatively soft and positions are disinterested in the investment community, the price
action for gold is beginning to look constructive in technical terms at Credit Suisse.
While gold is up on the recent ECB comments, analysts with Credit Suisse warn
that gains in the gold market based on such commentary can be undone by negative
economic data, which is abundant at the moment. Germany’s closely watched LFO
Index of Sentiment registered below forecasts on Wednesday as Britain’s second quarter
numbers have been far worse than expected.
In other metals, silver is up 0.4 percent to $27.06 per troy ounce, tracking the
gains in gold. Confidence is still generally tentative; with investors cautious to take
positions in the precious metals after recent QE disappointments have hurt the market,
though the opportunity cost relative to these developments is considerable.