Gold to Gain on Week, ECB “Is Robbing Savings” Posted by James Randolph on July 27, 2012
July 27, 2012 – The spot price for gold hit a five-week high at $1,625 per troy ounce in morning trading on the London market, setting gold on track for a weekly gain that would continue a pattern of choppy trading into its eleventh week.
Silver bullion also made gains to trade around $27.70 per troy ounce during morning trading.
Gold and silver rallied in trading the day before as Mario Draghi, president of the European Central Bank, made comments that indicated the central bank may begin a program of buying government bonds in another European version of fiscal stimulus.
A technical analysis note from the bullion bank Scotia Mocatta reads that the risk for gold may entail a move toward $1,640 per troy ounce, which is the June high. The bank also believes there will be buyers on any retracement to $1,590.
Credit Suisse analysts believe the price action is beginning to look more constructive in terms of technical dynamics. However, they also believe that the influence could fade quickly or is unreliable at this point as physical demand is still weak and the investment community is still relatively disinterested in positioning at this time.
Gold bullion appears to be on course for its biggest weekly gain in seven weeks by midday Friday in London. If the PM gold fix comes in at $1,626.75 or higher, this would be the biggest weekly gain in gold since January.
Later, preliminary US GDP figures will be released. In the meantime, European stocks were largely flat in morning trading after a rally Thursday, spurred by Mario Draghi’s announcement that the ECB “is ready to do whatever it takes to preserve the euro.”
The head of international economics at Barclays, Julian Callow, believes this is a signal that the ECB is closer to outright buying of bonds in the event other methods of preserving the strength in the euro fail.
The ECB’s Securities Markets Programme was launched in 2010 and purchased Spanish and Italian government bonds on the open market last year.
The German newspaper Handelsblatt ran a headline translating loosely as “Draghi is plundering the nest eggs of citizens.” The phrase is attributed to a German politician by the name of Frank Schaeffler.
Germans have been on a buying spree in the recent months, partially due to the belief that ECB policy is inherently destructive to savings. Klaus-Peter Willsch, a member of chancellor Angela Merkel’s CDU party, said that higher inflation is an
inevitable consequence of the ECB’s policies and that Germans are opting to buy assets in real estate, agricultural and forest land, gold, coin collections, and even classic cars in order to beat the inflation and also in a flight to real values.