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Gold Hits Record High in Euros

October 3rd, 2012 · Chris Vermeulen · 40 Comments

The price of gold hit a record high this past week . . . in euro terms (at about 1380 euros). The record came after a number of actions by central banks around the world, trying to stimulate their respective economies. The actions, usually centered around money printing, once again had investors looking for refuge in gold.

Since the beginning of September, investors have bought about 75 tons of gold through exchange traded funds. Reuters says that gold ETFs, such as the largest gold ETF – the SPDR Gold Shares (NYSE: GLD), are on track for their biggest quarterly inflows in over a year, of 3.285 million ounces. Finally, according to UBS, investors have also raised their bullish bets on gold futures to the highest level in more than a year.

All the world’s major central banks took action recently including the Bank of Japan which launched a fresh round of monetary stimulus. The main action though was centered in Europe and the United States.

The European Central Bank has promised to buy an unlimited quantity of eurobonds going forward. And the Federal Reserve announced its third round of monetary stimulus, QE3, that promises to buy $40 billion of mortgage-backed securities monthly on top of its ongoing Operation Twist program of buying long-dated Treasuries.

Speaking about the monetary easing, Barclays precious metals analyst Suki Cooper put it this way to the Financial Times, “Gold finally found the catalyst it had been waiting for all year after the Fed announced open-ended quantitative easing.”

Another reason for gold’s rise in euro terms, it must be noted, is the continuing fiscal turmoil in Europe itself, particularly in Spain. Spain’s largest autonomous region, Catalonia, manages an economy as big as Portugal’s.

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The problem is that it has debts of 42 billion euros which it is struggling to service. Catalonia has requested a 5 billion euro temporary bailout from Spain’s central government, adding to its debt burden.

In a real show of defiance, Catalonia is also refusing to implement austerity measures. Add to that, bank stress tests in Spain showed that the country’s 14 largest lenders will need 60 billion euros in new capital.

No surprise then that physical demand for gold bars and coins in Europe rose 15 percent in the second quarter, according to the World Gold Council!

Another positive fundamental reason in the corner of gold bulls is the recent currency appreciation in the Indian rupee. India is traditionally the world’s largest consumer of gold. Sales have been slow there this year due to the government trying to slow down gold sales there through rises in a gold import tax. However, the recent rise in the rupee has made gold purchases more palatable and gold sales to India have hit their highest level in two months.

So for now, many of the fundamentals look to favor a move higher for gold, although there is technical resistance at its 2012 high of $1791.

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40 responses so far ↓

  • 1 Greg Atkinson // Oct 4, 2012 at 7:47 pm

    I wonder if gold will break through $2000 USD an ounce on this run. According to the gold bulls this was a given a few years ago. If QE1-3 plus the ECB & BOJ tossing money around doesn’t get gold to that mark then I reckon it’s going to slowly come down again.

  • 2 BP // Oct 4, 2012 at 9:48 pm

    Long way off your last estimate ( Jan 8, 2012, 12:37 pm), Greg.

    “I agree that unemployment will probably higher and rates lower. Gold I reckon will be closer to $10000 USD an ounce than $2000 but I am a gold bear, so you can take that with a pinch of salt.”

    Attempted at the time to suggest this was a typo, but finally figured you’d gone All Shoes on us… . 😉

  • 3 Greg Atkinson // Oct 4, 2012 at 10:14 pm

    A bit early to get too chirpy BP, that call was for the gold price at the end of the year..still a while to go yet. Let’s see hold gold does after QE3 wears off.

  • 4 Stillgotshoeson // Oct 4, 2012 at 10:53 pm

    I am still calling a top of $2400USD/$3000AUDOz for Gold

    There are some whom think I have said $6000Oz.

    Have used $6000 in an example (quantified with $2400 call)
    If just using “$6000” in a comment makes me a caller of that price then one would have to admit that this would then also qualify.. I mean one is stating that he has made plans on what to do if gold prices reach those heights.

    My Quote “clicked” and re-posted by..
    Comment by Biker on 27 September 2010:

    OK, here’s a starter:

    “Gold Skyrockets to $6000 an Ounce $498000 (I think $2400 or so)

    My guess on the share price is right.. $970000… .”

    Not bad. Your guess made you nearly a million dollars.
    Not a bad guess… and all you did was watch fireworks… !~

    Plans made Quote…

    Comment by Biker on 5 June 2010:

    “It’s pretty obvious some DR Australia readers would like to see house prices “crash” because they’d like to buy houses?”

    Ned, how could you think such a thing? It implies that inside every goldbug there’s a rampant property bull raging to get out. (The visual imagery makes even ‘Alien’ look tame… . 😉 )

    But your main point is spot-on. I’ve never wasted a breath wishing gold would crash, so that I could pick up a few kilos for $600/oz. Hell, I don’t even care if it jumps to $6K per ounce! Think of the housing shortage _that_ would create!! Have to admit that if gold fever reaches those heights I’ll buy a Minelab GPX 4500 and spend my winters camping at Rothsay and Payne’s Find…!!~

    $2400 is not a 2012 call either..

  • 5 Greg Atkinson // Oct 5, 2012 at 8:19 am

    Yes that is quite a call but it’s open-ended…I guess in theory the cost of a meat pie will get there one day as well. U.S. stocks & gold have both done well due as the U.S. peso has weakened but I think it’s getting into tulip territory when there is talk about $6000 oz.

    As I have pointed out many time before tonnes of gold is parked in vaults every year. In other words around 33% of it isn’t needed for industrial demand or even jewellery…it’s just sitting there.

    Around 50% is used to make pretty things which can quickly come back into the supply chain when the price is right.

    But don’t take my word for it, you can read all about the demand for gold and where it comes from here: Demand and Supply (World Gold Council)

  • 6 BP // Oct 5, 2012 at 8:43 am

    GA: “I guess in theory the cost of a meat pie will get there one day as well.”

    OK, you envisage meat pies at $10K per ounce.

    But in that wildly inflationary scenario, in which folks are paying $10K per ounce for gold (and theoretically $10K per ounce for minced offal) you actually question whether Australian homes will _rise_ in value?

    “Can Australian home prices keep rising? (908)”

    “The Australian home prices debate Part 1: Why prices may fall. (331)”

    Pure gold… . 😀

  • 7 Greg Atkinson // Oct 5, 2012 at 9:33 am

    BP I suspect by the time a meat pie is worth many C notes that none of us will be around to check what house prices are doing so perhaps you should focus on something else to keep you amused.

    P.S. BTW this thread is about gold, not house prices.

  • 8 Stillgotshoeson // Oct 5, 2012 at 12:18 pm

    Gold is tipped to reach record highs in all currencies next year.

    It has definitely out performed both meat pies and houses from 2000 to present up circa 600%
    Not sure about meat pies but houses back then you needed about 650 ounces of Gold to buy an average house in Melbourne, now you only need 275 or so.

    With talk of prices as high as $50000 an ounce will it become 10 ounces or less required?
    or the DRA thread saying $27000 a possibility.. making 20 ounces or so.

    Who knows? No one, but I see no reason that gold will not continue to outperform property for a little while longer yet.

    Silver probably more so and for longer (more volatility though)

  • 9 Greg Atkinson // Oct 5, 2012 at 12:30 pm

    Still the supply and demand fundamentals for gold look pretty skewed to me. Clearly if gold pops over $2000 an ounce within this year or early next year then the bulls will be right. But I still reckon the gold price is in bubble-land.

    For Oz investors, BHP stocks up until late last year also outperformed gold plus you would have got some nice dividends along the way.

    With physical gold or gold ETF’s you receive nothing until you sell. So the question is, when will the balance tip and the sellers start coming into play in a big way? Soros for example may already be selling.

  • 10 Stillgotshoeson // Oct 5, 2012 at 1:09 pm

    Euro countries still surviving on an ever increasing credit card limit. The USA increasing it’s credit card limit at the end of the year. There is just not enough positives in the global economy to change my view that this is not over.

    Gold (and Silver) may pull back, but they have certainly not finished their bull runs.

    AUD Gold is looking very good now, admitted weakness in the Australian economy and falling rates means overseas funds that parked funds here for the attractive yield are going to start pulling that money out.

    Some exposure to precious metals is still a worthwhile proposition for a portfolio at this time for my money.

  • 11 Lachlan // Oct 7, 2012 at 6:32 am

    Gold did not break the 2000 barrier when I felt it might Greg that is true. Going forward however all I can see is that two main things control gold prices which are the quality of debt/money and the futures markets which are biasing against the rise. So far the signal is that the quality of debt is going to be accelerated lower again. Therefore although it is at least possible to see gold lower from here I would stick with my estimate of 1450 to be a floor in the bottom and the upside here to approach 2500 in the next two years. I say two years because the current consolidation may be a trap for the price in the short term. If that consolidation does hold for a substantial period then 2500 may prove a low estimate even.
    Then what if a paradigm shift occurs. What if the USD reserve status is officially abandoned (already unofficially abandoned now for those willing to look at China, Russia etc) and price inflation sweeps through. Well the nominal price can go into tens of thousands if that happens. There is no doubt that is feasible. But all it will reflect is the exceedingly low value of existing paper currencies. There may be an attempt to stage a very coordinated move into a new GRC and limit financial chaos and then maybe there will be no attempt to limit such chaos. A war with Iran may take place which will coincide with widespread price inflation.
    To sum up I would say that gold is at a high price now relative to the depressed velocity in economies but that behind that scene the greater bubble is actually in currencies/debt. So I have little concern over holding any hard asset which should be a store of wealth when what I see as an inevitable price inflation occurs.

  • 12 Lachlan // Oct 7, 2012 at 6:43 am

    Agree with Shoes about falling target rates at RBA too. This will help break the cap on AUD gold if they go too far on the easing.
    Shoes those European countries are in a mess. They really need a full stop on the credit and get back to producing something for themselves. Alas that seems a million miles from happening since to begin with the people there barley seem to understand the situation they have allowed to get themselves into.

  • 13 Lachlan // Oct 7, 2012 at 6:59 am

    And just to clarify my Oz position. Are we much different? No not at all. In terms of self reliance this country is just a shadow of it’s former self since the globalisation imperative swept through (when we stop comparing with others and just look at what we are). And people here are just as deluded. However we are a smaller/connected world now….and when I do compare Oz to the rest…well if I imagine the worst case global financial scenario coming to fruition (and putting national security issues about which I understand too little aside), then I can’t help but see that we are few peaceful people with much food and resources. And less likely to go bananas on the streets and blow all our cities and houses up. And there is likely a premium on such environments in the current age. People here have plenty to be thankful for. So fundamental factors make me a strong Aussie bull.

  • 14 BP // Oct 7, 2012 at 10:28 am

    Shoes: “Gold is tipped to reach record highs in all currencies next year. It has definitely out performed both meat pies and houses from 2000 to present up circa 600%…”

    Yet physical gold doesn’t feature at all in your portfolio, Shoes. I’d have expected to see at least _half_ your investment in a commodity which is tipped to reach record prices next year. 😀

    It wasn’t all that long ago you were ‘coding’ your buys to prevent others from benefiting from your expertise. 😉

  • 15 Greg Atkinson // Oct 7, 2012 at 11:55 am

    BP not even the most bullish of gold investors like Faber & Rogers have 50% of their investment funds sitting in gold.

  • 16 Stillgotshoeson // Oct 7, 2012 at 12:36 pm

    Greg Atkinson // Oct 7, 2012 at 11:55 am

    BP not even the most bullish of gold investors like Faber & Rogers have 50% of their investment funds sitting in gold.

    Cut him some slack Greg, the man is obviously an idiot. His lack of comprehension skills for understanding anything written here astound me at times.

    It is why I just do not bother responding to any of his posts any more.

    I mean, the guy is even too stupid to realise that as well.

  • 17 Greg Atkinson // Oct 7, 2012 at 10:06 pm

    Now back onto topic – are we expecting gold to hit $2000 USD an ounce this year?

  • 18 Lachlan // Oct 8, 2012 at 5:38 am

    I had a look over the weekend Greg and it seems the current move in gold is being followed by the gold shares which had a nice jump on Friday in particular (in my own portfolio). I can see a fair resistance point just ahead however and the correlation does spread across gold and the shares on many charts. So we will have some kind of test around USD1800/Oz and in shares for example NCM may have been around $30 (without going back to check). So anything could happen. A big snap back and rally or a normal pause and rally continuation or it could be an intermediate top. If the action powers through without blinking then the gold bears will be in trouble and the prognosis would be very bullish. For this moment however all I can see is that we have a normal bounce which was expected sometime after a big sell off and we are approaching a test area that will indicate afterwards what we are likely to see for the next fair period of time.
    I saw Mr Soros on Youtube commenting on the monetary and political transition taking place too. Even he is not sure if things may come to grief or not.

  • 19 Lachlan // Oct 8, 2012 at 5:49 am

    Well he has a vision he hopes to see to fruition is my point but says it could get out of hand. He harbours some doubt at least.
    That helps me understand why he trades in and out of gold positions.

  • 20 Stillgotshoeson // Oct 8, 2012 at 7:43 am

    Greg Atkinson // Oct 7, 2012 at 10:06 pm

    Now back onto topic — are we expecting gold to hit $2000 USD an ounce this year?

    In a nutshell. No. I am not expecting gold to break $2000USD/Oz this year.

    1st half 2013 I would expect us to break the $2000USD/Oz level

  • 21 Greg Atkinson // Oct 8, 2012 at 9:04 am

    I was having a hard look at Newcrest Mining when they were around $21 and missed the ride up in gold prices & gold stocks yet again. It seems to be very much a timing game now…the price creeps up when another wave of QE is on the cards and then gradually falls back somewhat on the realisation that more QE hasn’t worked the magic policy makers had hoped for.

    I reckon next time Soros has to disclose his positions we will find out he has been offloading some of his gold ETF holdings.

  • 22 Ned S // Jan 4, 2013 at 10:10 am

    Gold has given up its recent gains. US jobs figures come out today. Last unemployment figure I saw was 7.7%, which is starting to get within striking distance of making Bernanke’s 6.5% target imaginable maybe? (With the target being the point at which Bernanke reckons he might raise interest rates. Depending on inflation.) Any sort of unexpectedly good result today on jobs just could drive gold down a bit more.

  • 23 Greg Atkinson // Jan 4, 2013 at 10:27 am

    That will not stop the predictions of gold breaking through $2000 USD an ounce being made again in 2013. That would make it year three or four of such predictions by my count. Eventually the gold uber-bulls will be right though…they just need time 😉

    Then again, I have been saying gold has been in bubble territory for a few years as well!

  • 24 Ned S // Jan 5, 2013 at 3:58 pm

    Well gold held up reasonably well given that FOMC thing I’d say. I guess keeping a good eye on US employment propects going forward is necessary if one is invested in gold.

    Catalonia: Seems it gets to have a vote on independance in 2014 (as does Scotland):

  • 25 Lachlan // Jan 6, 2013 at 7:41 am

    I believe the correction/pullback which was highly probable from gold @ US$1800/oz is nearly over. A bottom in Oz dollars and in US dollars could be just a tad lower yet (possibly 1540 AUDs and 1590 USDs) or else the bottom could be in already. The action is broadening and volatility is high. Either way the pattern of consolidation, a bull flag in both currencies and also similar in silver is more likely to break to the upside than down.
    Hoping to add just a little on Monday then.

    Gold shares still showing no signs of a bottom apart from the generally oversold condition. This is a long multi year bear market and when it bottoms the few survivors will see massive initial gains. As they would for any market in such a state of oversold.

    Greg I think while breaking 2000 might be possible this year it is less likely than a prognosis for trading below the current high and the mid to high 1500’s area…in a long winded, multi year trading range.
    Of course these are just my bets based on probabilities as I gauge them on price studies. I understand trading ranges can be broken without warning in any case…either way….but the trend is my friend.
    Incidentally the AUDUSD nearly broke out to the upside of it’s pennant…but I think the RBA may have put on the last minute brake as per their stated policy. I am sure there is only so much they can do and they would know that. I am confident longer term that pair will still move to its higher destination in any case.

    XJO is stretching for 4800 where it will possibly get volatile again and relieve this rally. Dow short traders have been decisively shaken out by Bens mates imo. Obvious technical trades like that are very dangerous.

  • 26 Lachlan // Jan 6, 2013 at 7:54 am

    Breaking $2000 gold would be a fairer proposition for early 2014 onwards at least.

  • 27 Ned S // Jan 6, 2013 at 2:13 pm

    Quite comprehensive writeup on gold here Lachlan:

    I also value this man’s views (he’s a trader):

    “I will be adopting two potential strategies.

    1. I will eye accumulating Gold when it is sub $1580 for long-term investments, probably upto 6% of total portfolio (Gold and Silver). Silver offers the better long-term opportunity in terms of risk vs reward off of the lows due to expectations for a deeper discount and greater long-term potential.

    2. I will attempt to trade the range when opportunities arise i.e. buy off of $1550 triggers and exit from $1800 triggers. With the risk of an ultimate breakout higher I will refrain from trading the short-side. Also remember trading commodities is extreme high risk!”

  • 28 Stillgotshoeson // Jan 7, 2013 at 1:07 am

    I expect debt ceiling talks in the US in a month or so to put some upwards pressure back on the Gold price.

    Back into the $1700/$1750 USD range as discussions drag on.

    Silver maybe low to mid 30’s

    Our dollar looks like it is going to stay stubbonly high this H1 2013.

    H2 2013 I can see it finally pulling back to below parity.
    Personally I would like to see our dollar in the 80’s region.

  • 29 Lachlan // Jan 7, 2013 at 4:53 am

    Cheers Ned. Good gold article. Das is an articulate fellow. Nadeem speaks my language but maybe his exuberance is a slight worry.

  • 30 Lachlan // Jan 7, 2013 at 5:04 am

    Will be picking up some silver too Shoes. Currently a bargain..imo.

  • 31 Greg Atkinson // Jan 7, 2013 at 9:04 am

    I am more inclined to invest in silver than gold because I can see a solid industrial demand for silver and less of it going to sit in vaults. As for gold, well I would b tempted to buy until it got back near $1200 USD but then again, my track record in waiting for prices to drop isn’t a good one!

  • 32 Stillgotshoeson // Jan 7, 2013 at 10:20 am

    My preference has always been to Silver Bullion and Gold Miners..

    Last 12 months or so has not been kind to my Gold Miner portfolio though….

    Silver to Gold ratio is currently in the 50’s. I am expecting it to fall into the 30’s within the next 12 to 18 months.

  • 33 Biker Pete // Jan 8, 2013 at 8:05 pm

    “…a trillion dollar platinum coin…?

    Meanwhile A$100 buys us 2,186,120 dong, covering a hotel bed in notes. Apparently a few billion will buy a small bungalow… . 😀

  • 34 Lachlan // Feb 19, 2013 at 6:50 am

    Gold is still churning around after having a nice initial rise off the bottom. It is important technically it moves up soon and avoids breaking down below the bottoms made over the 1550/60 area in USD. Otherwise a breakdown will be much more likely. I currently think it still likely to rally over the sell off scenario. And back to 1800/1900 areas by Christmas or so.
    Small cap gold shares continued their grind into oblivion last week which has decimated further my small portfolio. Gambles are fine imo as long as you can stay solvent for the period.

  • 35 Greg Atkinson // Feb 19, 2013 at 9:02 am

    Lachlan I read Soros and a few other canny investors had been selling some of their gold holdings so maybe they see further falls ahead?

  • 36 Lachlan // Feb 19, 2013 at 10:50 am

    Hard to know what to make of it Greg but obviously he sees a problem or else wants people to think he does. He’s been around long enough… but I’m not making assumptions either. Just keeping grey. Also I am not sure what involvement George has with hard metal, vs paper.
    I can tell you this much Greg. I am more open to the possibility of declines in gold than in previous years because of the level of interference in markets. But then we all have to make a stand on something/s. I have definitely a focus on diversification now also which I think is important as ever.

  • 37 Stillgotshoeson // Feb 19, 2013 at 2:21 pm

    Lachlan // Feb 19, 2013 at 6:50 am

    “Gambles are fine imo as long as you can stay solvent for the period.”

    No matter how confident you are on a share you should never over commit to it and leave yourself exposed. Many people get greedy and over commit themselves to a share and come undone.

    Only a small percentage of your funds should go to an individual share. Leverage is a recipe to disaster too when buying small or micro caps. Only use money you don’t need.

  • 38 Lachlan // Feb 19, 2013 at 4:27 pm

    Its never nice to see an investment lose a lot of ground Shoes however despite the hammering the tiny caps have had they were way oversold as a class when I got in so I was always going to hold. Even if they collapsed to zero and all went out the back door I’d still be in no trouble. I am concerned however about buying some more as they reach support very soon. The gains possible there are very high.
    I have no leverage either and I spend less than 2K on these gambling type shares. I call them gambling shares because of the volatility apparent and the almost zero correlation with reality (fundamentals). They are almost all correlated with each other however…no matter how good or bad they seem. I expect they will all turn up as a group. I have not and will not sell a single one. Gotta have some nerve I reckon.
    btw even larger ones eg NCM look a worry have you noticed?

  • 39 Lachlan // Feb 20, 2013 at 2:30 pm

    Ordered up three tubes 1 Oz Perth mint silver coins today. I really like their coins with the little cases and all. Silver chart looks good on the current dip. Agree it could go to 20/21 though Shoes. Possible anyhow.

  • 40 Biker // May 8, 2013 at 10:17 am

    What would Soros know, anyway?

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