Euro Price of Gold Hits Record High As "Debt Woes Spreading" Beyond Greece - Gold Matters

THIS STORY IS STILL DEVELOPING.... AS REALITY STEPS IN...

Monday, May 23, 2011 8:55 AM EDT

Euro Price of Gold Hits Record High As "Debt Woes Spreading" Beyond Greece

By Ben Traynor

The Dollar price to Buy Gold was trading in a tight range around $1510 on Monday morning in London - a 1% gain on the start of last week - as stocks and commodities fell after ratings agencies gave fresh warnings on Eurozone sovereign debt.

In Germany and Spain, meantime governing parties suffered local election defeats.

The Euro lost nearly 1% against the US Dollar in early trade, dropping through the $1.40 mark.

The Gold Price in Euros shot to a new all-time high of €34,746 per kilogram (€1080 per ounce) - 1% above Friday's close. The Euro price to Buy Gold has risen 16% since this time last year.

Silver Prices meanwhile remained flat - trading just under $35 per ounce, virtually unchanged from two weeks ago.

"One problem for the struggling euro zone countries is that they've given up currency flexibility," says Steve Barrow, currency strategist at Standard Bank. "Without the ability to lower interest rates or ease fiscal policy, the inability to devalue makes things tough."

"The week is starting in a decidedly fearful mode, with the spillover from Friday's concerns about Greek debt restructuring still dominating markets," Société Générale's head of foreign-exchange strategy Kit Juckes.

The yield on Greek sovereign debt set a new all-time high of 17% on Monday morning.

"Greece risks a sovereign default," warned French finance minister Christine Lagarde - favorite to be the next head of the International Monetary Fund (IMF) - warned on Friday. "Finance ministers have expressed strong doubts about [Greece's] sluggish progress."

"The Euro is likely to search for the bottom this week as Greek debt woes appear to be spreading to other countries," reckons Mizuho Trust and Banking trader Yoshio Yoshida.

"If the crisis starts to involve other nations beyond Greece, then we could see gold heading to a new record high," Ong Yi Ling, Singapore-based investment analyst at Phillip Futures told Reuters.

Ratings agency Fitch cut its rating on Greek sovereign debt by three grades on Friday, to BB+ to B+. On the same day, Standard & Poor's changed its outlook for Italy's debt from stable to negative, citing "potential political gridlock" and "weak" growth prospects.

Over in Spain, meantime, early results show the ruling left-wing Socialist party is heading for heavy losses in Sunday's regional elections, while tens of thousands continue to pack city streets across the country to protest against unemployment. The opposition Popular party looks to have gained 37.5% of the vote - 10% more than the Socialists.

"Should [Spain] be under severe stress, the capacity of Europe to deal with it would be put in question," says Laurent Bilke, senior economist at Nomura. "Rather than the local elections, it is more the resemblance of Madrid's Plaza de la Puerta del Sol to Cairo's Tahrir Square which is disturbing for the markets."

German chancellor Angela Merkel's party also suffered a local election defeat at the weekend, with the center-right Christian Democratic Union party finishing behind the Greens in Bremen - the first time this has happened in a state election.

Euro Price of Gold Hits Record High As "Debt Woes Spreading" Beyond Greece - Gold Matters

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Mongolia, the next commodity powerhouse (?)

Mongolia is going to be a major future supplier of commodities from coal through gold to copper – and maybe even crude oil. But how soon will this landlocked country with a population of 3m really begin delivering these resources to the world in a significant, market-moving way?

While at first Mongolia seemed to be the poster child for liberalization, in the last several years that has changed as the population has demanded a larger share of the resource bonanza to come - Ivanhoe Mines and Rio Tinto's Copper-Gold behemoth, Oyu Tolgoi, being the headline project. While justifiable to a certain degree, in reality it has meant many of the mining projects on the drawing board have been delayed. The China issue remains a particularly prickly subject, as the FT notes in the article below,

Although Mongolia is located right next to its biggest customer, China, their history of rivalry makes Mongolia suspicious of its southern neighbour. And capricious politics – parliament has tried to oust Dashdorj Zorigt, minister for mineral resources and energy, twice this year – mean that economic logic is sometimes subordinate to politics or nationalism.

Glencore gets off to a Rocky Start

Glencore's IPO, 4X Oversubscribed, yet it couldn't even muster a 1 p gain on its first day of trading...

From the FT, link to full article below.

Glencore’s stock market debut left investors who had hoped for a big first day rally unimpressed, after the shares closed at the offer price of 530p. [...]

Following the issue of nearly $9bn worth of new shares, including an overallotment option, the enlarged company will have a market capitalisation of $62bn

The banks underwriting the initial public offering, led by Citigroup, Credit Suisse and Morgan Stanley, supported Glencore’s shares in the last five minutes of trading to prevent the price dropping below the 530p level.[...]

Glencore’s advisers had hoped that the shares could rally by 5 to 10 per cent on Thursday after the$11bn IPO was more than four times subscribed. [...]

“If you are genuinely four or five times oversubscribed, why is the share price flat?”

Bankers had hoped that a strong initial performance from Glencore would hearten investors and reinvigorate the sluggish market for European IPOs. [ So much for that...!]

 FT.com / Commodities - Glencore debut underwhelms investors



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