Gold price movement and the Euro crisis

DiggerUK

"Dollar usurps gold as safe haven."

The article from this weekend Financial Times ends with the following quote:
“The reason why gold is going down – and the reason why the dollar is going higher – is really a reason why gold should do well.”
which will seem like goldbug gobbldeygook, until you read the article; which to me is saying that the US dollar is the best looking horse at the glue factory. It also goes a long way to answering the OP.
But then again, what do I know...I'm bonkers aren't I?

As usual, if the FT link won't work, copy 'Dollar usurps gold as safe haven' in to your tool bar, or copy to search engine, you will find a readable copy.
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sabretoothtigger

Strange how these two evebts could be intertwined or not at all to a smug few perhaps

Financial News: Banks Turn To Gold For Liquidity Boost

By Matt Attwood
Of FINANCIAL NEWS

Senior bankers are lobbying regulators to include gold in new rules designed to help European banks overcome the difficulties they face in funding their liabilities.

The liquidity coverage ratio, a component of the Basel III accord, which comes into force in 2015, will oblige banks to hold reserves of the highest-quality assets that they can easily convert into cash. These should be low risk and easy to value even in times of market stress.

The rules, in their current form, rely heavily on European sovereign bonds. The present volatility in the market has shown that these assets are not always easy to sell.

Banks are therefore asking for a wider range of assets - among them gold - to be included in the rules.

Michael Anderson, group head of asset-liability management at HSBC, said: "We've had ample evidence of a lack of liquidity in debt issued by some sovereigns recently, so this is hopefully a good time to persuade the regulators to give some ground.

"It's very difficult to predict the future from historical patterns but there is nevertheless plenty of evidence to support the view that gold has historically tended to be counter-cyclical."

Such calls come at a time when central bankers are rediscovering the virtues of gold. According to the World Gold Council, the official sector became a net buyer of gold in 2010 for the first time in 21 years, and has continued to make net purchases throughout 2011.

Under the Basel rules, 60% of banks' liquidity pools must be in the form of Level-1 assets: top-rated sovereign bonds, cash or central bank reserves.

The rest of the liquidity pool can be made up of Level-2 assets, which currently comprise riskier sovereign debt and covered or corporate bonds rated double-A or higher.

Some bankers believe that, given the problems besetting eurozone sovereign debt, the Level-1 component should be cut to around 50% and gold should be admitted to the Level-2 category.

One European head of debt capital markets said he believed bank treasurers were already facing difficult questions from shareholders: "If I was at a bank I'd be hard-pressed to explain why we couldn't use gold as part of a liquidity pool. In a distressed market it's the one asset that's both liquid and likely to go up in price."

HSBC commodities analyst James Steel said that gold tends to perform well in times of crisis and does not suffer the volatility afflicting other asset classes. But he noted that the picture is muddied by gold's positive correlation with the euro: "Had the same crisis occurred in the US, gold would be significantly higher. It has complicated everything for gold analysts this year."

Andreas Böger, co-head of capital solutions at Deutsche Bank, said: "In the new world it will still have to prove that it is really counter-cyclical. But generally I think it should be treated as a liquid asset."

Web site: https://www.efinancialnews.com

(END) Dow Jones Newswires

December 18, 2011 19:01 ET (00:01 GMT)

DiggerUK

The temptation to get gold in to the equation somehow must be huge....after all, it would keep the pumps more effective in my minds eye.....and buy them a lot more time.
QE would constantly devalue currencies; but it would uptick the price of gold (pog), and thereby give them a fifth ace up the sleeve....i.e., the opportunity to carry on with printy printy, due to the pog keeping pace with debasing the currency.

Not fully sure if I'm right on this one, but would be interested in the flaws in my argument being highlighted. Makes Brown and Blair's folly even more ridiculous.

(Vive le smug hey ST!)
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sabretoothtigger

I cant claim to be smug as I realise this stuff in retrospect. I thought banks were good value in 2008 :laugh: somehow I think they are now but am probably still wrong


ECB guy speaking live now -

http://www.europarl.europa.eu/ep-live/en/committees/video?event=20111219-1500-COMMITTEE-ECON&vodtype=Live

But would it give sovereigns their AAA ratings back?

I dont think the value of gold equals the debt. USA would need a gold ounce price of 42k ?

DiggerUK

sabretoothtigger wrote: »

.......I dont think the value of gold equals the debt. USA would need a gold ounce price of 42k ?

42K? bugs will be saying...told you so, and posting pictures of rockets.
No, I don't believe that gold would equal the debt, unless such astronomical figures in pog were reached.
But as the %ges to meet the rating agencies 'stress' assessments are low, then if gold was allowed into the equation, it would make it cheaper to borrow I suspect. It would be gold leasing by a different means as far as I can see.
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sabretoothtigger

Gold already backs the underlying worth of many countries currency, all the banks are asking is that they can say they hold the same value to their gold, Im surprised its not already true or that banks are even sensible enough to own gold. I never heard of RBS or HBOS buying gold

worldtraveller

Oh dear! Gold seems to be falling even further, with worries about the debt crisis in Europe dragging it down, as investors look to be moving more into cash. So much for it being the safe haven from economic turmoil! Bubbles are not for life, but maybe just leading up to Christmas!

Still looking very good for dripping cash back into general commodities early next year as prices continue to fall.

sabretoothtigger

That is showing poor perspective though because gold is up this year, its higher then it was in the first six months of the year or for many years before that. We cant begin to call it especially weak just yet.
This is a major break of the 2009 rises but still its well up and I assume it will just resume at some point. The news of leasing rather then selling of gold would seem to match that, there is no added extra supply just a disruption to previous cycles

I find it hard to believe the dollar is really going to prove more reliable going forward though anything is possible, thats really up to the creditors what do they want from trade


S Korea reports strong surplus trade and they have been increasing gold as part of their foreign reserves.

http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201112252058dowjonesdjonline000179

worldtraveller

sabretoothtigger wrote: »

S Korea reports strong surplus trade and they have been increasing gold as part of their foreign reserves.

Yes, but I also heard that Gordon Brown had recently taken on the job as their Minister of Strategy & Finance.