Gold Market Up on Euro Ruling, Eyeing Fed Posted by Adam King on September 12, 2012
September 12, 2012 – The metals and the oil markets rallied on Wednesday, as crude gained for a fifth-straight day and gold hit six-month highs, fueled by the German Constitutional Court’s approval of a Eurozone bailout fund and by expectations of more monetary easing from the U.S. central bank, the Federal Reserve.
Platinum also made new highs since early April amidst new concern about spreading labor unrest in South Africa, the largest producer of the metal on the planet.
The German Constitutional Court ruling is viewed as a signal the bloc is taking steps to tackle its significant debt crisis. The German backing of the 700 billion euro European Stability Mechanism is a sign there is more cohesion between European leaders than there possibly has been in recent months. Several public statements made by European Central Bank President Mario Draghi as well as German Chancellor Angela Merkel indicated disagreement between European heads. While the ESM has yet to take any effect, the bitter rivalries that had developed in the European bloc appear to have taken a backseat to the need to meaningfully resolve the debt crisis.
Markets are also eagerly anticipating the results of the Federal Open Markets Committee meeting, which is occurring now. At the conclusion of the meeting, Fed Chairman Ben Bernanke will appear at a press conference to announce the results. Many are expecting some form of stimulus and the commodity markets appear to be benefitting from the expectation.
Gabriel Garcin, a portfolio manager at Europanel Research & Alternative Asset Management in Paris, sees the dynamic as a recurrent one. The question is whether there will be quantitative easing or not and he sees the measures, if they are taken, as pushing up prices in markets. It would also change the drivers in commodity markets, in his view, from a supply demand fundamental to a risk-on, buyer’s market.
Gold shot to $1,746.20, the strongest gain in the metal in six months. The precious metal has risen twice as many days as it has not in the current calendar month.
Spot platinum and the metal’s price in South African rand have reached multi-month highs on the spreading civil unrest in the resource-rich country that accounts for around 80 percent of global output. From an isolated incident at Lonmin’s central mine, violence has spread to mines throughout the country, sparking multiple strikes in solidarity with the mine workers.
The spot price of platinum has risen nearly 20 percent since the strike at the Lonmin mine left 44 dead and dozens injured last month during skirmishes between police and workers.