-- Posted Monday, 10 May 2010 | | Source: GoldSeek.com
"To understand gold price movements now, you must watch macro-economics, not the short-term €:$ exchange rate, as the influence of that rate is diminishing slowly.”
Gold - Very Short-term
After the dramatic last week when gold topped $1,200, gold could now fall back to around $1,180 simply as a reaction to the Eurozone package being put in place. However, gold's bull trend has not been damaged, for no structurally effective solutions have been put forward, or are even on the table.
This package simply postpones matters for a year or so, at best, for if Greece, Spain, Portugal, et al have not got their house in order then confidence will be shattered in the €. Will the markets buy it for longer than this week? We could see them the European monetary authorities challenged. [More, at length on this, in this week’s issue of the Gold Forecaster]
Gold Price Drivers
Central banks are buyers of gold as we wrote about in our weekly newsletter. They will not chase prices, but will buy at higher levels if there is no gold at lower levels. They are underpinning the gold price.
Central Bank buyers, foreign & U.S. institutional buyers and foreign & U.S. individuals buy gold through the SPDR gold Exchange Traded Fund and they, in total, bought roughly 30 tonnes of gold last week. This was a very significant rise as they are not traders, but long-term holders of gold through that holding. [Even China holds gold through that fund]
Asian demand is priced in Rupees and Yuan and bought for different reasons than simply for profit and this demand is persistent, irrespective of the price. [Indian buyers are going quieter now until August, but will not affect the price, we expect.] Add this to central bank demand and you have strong support.
Euro & Eurozone problems
When entering the Eurozone poorer countries signed up to maintain certain financial ratios. They have not kept them, but no action was taken, because at one point Germany also failed on the front. So the rules were broken. Before they entered the Eurozone they were poor countries who did not have the power to structurally change themselves to the extent they would really flourish. Germany has always manufactured the best products so as to defeat any competition. The same is true now, but the nations are so heavily borrowed that there is little hope that they can change in the future.
Giving them loans now and putting in place more 'quantitative easing' will only, in my opinion, exacerbate the problem. Long-term, this will be destructive to the € and the Eurozone. Short-term, Angel Markel's defeat in this weekend's elections tells you that Germany will not assist Eurozone problems in the future, as it is against Germany's interests. To me this is not good news for this story going forward. We will have to wait to see if the markets are convinced?
The additional loans are therefore to poor re-payers, so Germany will end up carrying the can, eventually.
Regards, Julian D.W. Phillips – www.GoldForecaster.com
-- Posted Monday, 10 May 2010 | Digg This Article
| Source: GoldSeek.com
