Rumors that the Greek referendum on the European Union’s (EU) debt deal will no longer be held, or that Prime Minister George Papandreou may resign, are heating up the gold market. The precious metal jumped $28.40 to $1,758 per ounce on December delivery as the news of the EU shakeup drove down the dollar and spurred a euro rally. The European Central Bank also lowered interest rates by .25% to 1.25% in anticipation of increased inflation, giving gold even more allure as the European debt crisis shows signs of escalating. Forthcoming October U.S. jobs data will also play a role in gold’s near-term future as buyers move toward the safe haven investment. For more on this continue reading the following article from TheStreet.
Gold prices popped Thursday on speculation that a Greek referendum is dead, prime minister Papandreou is out and as the European Central Bank eased monetary policy.
Gold for December delivery closed up $35.50 at $1,765.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,768.30 and as low as $1,724 an ounce while the spot gold price was up $27, according to Kitco’s gold index.
Silver prices settled up 55 cents at $34.49 an ounce while the U.S. dollar index was down 0.65% at $76.59.
Gold had a tepid start on Thursday, with profit takers vying with a weaker U.S. dollar, but rumors that a Greek referendum is off the table or that Prime Minister Papandreou will be forced to resign caused a pop in gold as the euro rallied, the dollar weakened and investors had less need for cash.
The European Central Bank also eased monetary policy by cutting interest rates by 0.25% to 1.25%. The ECB had started on a rate tightening cycle earlier this year, with the bank more concerned about inflation, currently at 3%, than growth. This is Mario Draghi’s first meeting as president and he is changing Jean-Claude’s Trichet’s more hawkish stance. When inflation is higher than interest rates, cash in the bank is worth less and gold becomes more popular.
“Given the scale of the European and global debt crisis, the slowing U.S. and global economy and heightened macroeconomic, monetary and systemic risk — a move back to $1,800 seems likely — possibly in November,” says Mark O’Byrne, CEO of GoldCorp, a bullion dealer.
But other experts are predicting a volatile ride for gold. “Traders are likely to remain cautious to the outcome of the G20 meetings as well as tomorrow U.S.’ payrolls reading,” says James Moore, research analyst at FastMarkets.com.
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The list of uncertainties continues to grow. French President Sarkozy and German Chancellor Merkel give Greece an ultimatum as the G-20 kicks off its two-day meeting that the country get no more bailout money until it pledges to stay in the Eurozone — Greece will stop being able to pay its bills by December; another socialist party member, Eva Kaili, resigns from the ruling party in Greece leaving Prime Minister Papandreou with only a one seat majority a day ahead of his confidence vote; AP reports that the opposition party walked out of the confidence vote debate and that they are pushing for new elections in 6 weeks; the Fed hints but doesn’t commit to more quantitative easing; the U.S. is bracing for October’s jobs data.
Gold will continue to be at the mercy of currency fluctuations as a weaker euro means a stronger dollar which makes gold more expensive to buy in other currencies, and vice versa. Any kind of pending disaster in Europe might also trigger a flight to safety into gold but also might force liquidation as investors are forced to cover losses in other assets.
Barclays thinks that the former has a chance of winning out for gold. “Market sentiment toward Europe continues to warrant some flight-to-safety behavior in the near term.” Commerzbank also wrote in a recent note that “interest rates and therefore the opportunity costs of holding gold are still very low,” meaning that persistent negative real interest rates leaves gold is the more attractive asset to own.
Investors will also stay on edge as the U.S. prepares to release October’s jobs data. Expectations are that the private sector will add 117,000 jobs and 85,000 jobs overall while the unemployment rate stays pat at 9.1%, according to Briefing.com’s consensus.
Wednesday’s ADP employment report which said the private sector added 110,000 jobs last month has painted a more upbeat picture headed into jobs Friday. BMO Capital Markets warns that the survey has diverged from the private sector payroll figure “widely … by an average of 62,000 in the past decade,” but that it hasn’t been the case in the past two months.
A positive number could boost gold as investors have less need to liquidate or prompt investors to forget about gold and buy stocks. A negative number could trigger a rush out of gold into cash or could support safe haven buying. And the third possibility is that markets will care more about Europe than the U.S. and gold will still be held hostage by euro-dollar currency fluctuations.
“I do think that job growth will come in reasonably well,” says Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund. “I don’t think that we will see 100,000 like the ADP report but it should be a positive number and reinforcing our long standing view that there are improvements being made but they are very small and slow.”
Pursche thinks that unless the payroll numbers falls to one extreme or another it is unlikely to really drive the gold market. The G20 meeting, the Greek situation and Italy and Spain are more in focus.
“I don’t think you are going to see much movement. Gold prices have been driven by retail investors in the last 6 months … I don’t think we’re at a point where there are any new fears that are driving significant assets into gold.”
Supporting Pursche’s point is the SPDR Gold Shares(GLD), which hasn’t shed any tons since last Tuesday and is standing firm at 1,243 tons.
Gold mining stocks were higher Thursday. Agnico-Eagle(AEM) was adding 3.91% to $50.52 while Eldorado Gold(EGO) slipped 0.67% to $19.41 after delivering an in-line third quarter and lowering 2011 production guidance and raising cash cost estimates.
On the flip side, Kinross Gold(KGC) and Yamana Gold(AUY) were up 0.9% and 5.58%, respectively, after both companies reported killer earnings
Kinross made 24 cents a share in the third quarter and gold production was up 13% year over year. Cash costs rose to $634 from $517 a year earlier but margins were still up more than 50%. The company reaffirmed its 2011 gold production guidance of 2.6-2.7 million ounces.
Yamana made 26 cents a share on gold production of 279,274 ounces, up 4% from a year ago. Cash costs were $94 an ounce, factoring in silver sales, up 62% from the same period last year. The company reaffirmed its 2011 production guidance of 1.04 – 1.14 million gold equivalent ounces, which should increase to 1.7 million by 2014. Yamana also raised its dividend by 11%.
This article was republished with permission from TheStreet.