European Crisis Goes Bullish Posted by James Randolph on June 29, 2012
June 29, 2012 – Investors are bullish for the sixth week in anticipation that the European sovereign debt crisis will trigger demand from investors seeking a safe-haven asset in gold and the demand will drive prices higher after the biggest quarterly slump in gold in eight years, according to Bloomberg.
Bloomberg surveyed sixteen analysts, of whom ten were bearish on the prospects of the European summit and another five were neutral. Holders took on another $1.9 billion to holdings in gold-backed exchange-traded products so far this month, the largest gain since November data complied by Bloomberg shows. Hedge funds and other speculative ventures have increased bets on a four-week long rally according to data from the US Commodity Futures Trading Commission.
The Spanish government formally asked for a bailout for its banks on June 25 and Cyprus became the fifth member of the 17-nation Eurozone to ask for financial assistance. Today, European leaders agreed to ease repayment rules for the emergency loans made to Spanish banks and relax the conditional requirements for any potential help to the Italian banks. Gold fell to a level within 1 percent of a bear market in May, according to Bloomberg, as some investors sold bullion to cover losses in stocks and other markets while $7 trillion was wiped out of global equities in two months’ time.
“While demand has been weaker for bullion in recent months, it has picked up in the last month,” said Mark O’Byrne, executive director of Dublin-based GoldCore Ltd. “A resolution to the crisis is not going to be seen in the short term. A lot more speculators could pile back into the market.”
Gold fell 5.4 percent to $1,581.40 per troy ounce since the end of March, the biggest fall in the gold market since the second quarter of 2004. Bullion is almost flat for the year compared with a 9.8 percent slide in the Standard & Poor’s GSCI gauge of 24 commodities and a 2.5 percent advance in the MSCI All-Country World Index of equities.
Gold dropped 3.8 percent last week, the most this year, as the US Federal Reserve stopped short of announcing a new round of aggressive stimulus.