Any hint of animal spirits returning to the gold market was
subdued over the past week as the euro crisis entered a new phase
with scary Spanish bond yields, and Federal Reserve chairman Ben
Bernanke stolidly resisted any fresh hints on when he might roll
[caption id="attachment_62421" align="alignright" width="206"
caption="A picture from the gold vault of the Federal Reserve Bank
of New York"]
The gold market remained locked in a range. The value of our
ETFS Gold Trust (
) has barely moved in more than two months.
Gold, the world's oldest financial asset, has been gripped by a
new identity crisis since the great 2008 financial spasm --
sometimes trading as a store of value for the risk-averse,
sometimes as a risky holding to be fled on negative signs from the
market. Investors have taken the latter view this year, pulling
back from gold on signs of market turmoil.
Specifically, the gold market has closely tracked the downward
course of the euro since March. Investors see the metal, for the
moment, as an alternative to the dollar, so what strengthens the
U.S. currency relatively weakens gold.
In that context, the gold market sustained two pieces of
negative news over the past week. One was the
surge in Spanish sovereign bond yields
to euro-era records above 7% for a 10-year note. That spelled yet
more trouble ahead for the European currency, more strength by
default for the dollar, and less incentive to buy gold as an
The second bearish sign for the gold market was Bernanke's
testimony to Congress.
The Fed chairman managed to say nothing about the central bank's
plans or lack thereof, for a new round of monetary injection known
as quantitative easing. Prospects for so-called QE3 are probably
the most closely watched sign of all by gold market investors.
The common assumption is that QE3 might weaken the dollar
through dilution, increasing the attraction of gold. Bernanke's
studious silence despite prodding from the Senate Banking Committee
left gold market watchers in limbo, at least until the next Federal
Open Markets Committee meeting on August 1.
It should be noted that if the gold market cannot find a reason
to rally, neither is it panicked by the gloomy economic headlines.
An ongoing state of Euro-malaise seems to be baked into the gold
price at this point, and holdings in gold-related exchange-traded
funds remain near the
records reached a few weeks ago
. It looks like it would take something dramatic - a euro exit by
Greece say, or a discernible commitment to QE3 - to disturb the
market's midsummer calm.
Elsewhere in the precious metals world, silver looks to be
undervalued in technical terms after losing one-third of its value
over the past year. The ratio of gold to silver prices is near a
two-year high of 58, and well above its two-year average of 50.
Volatility in the silver market has also calmed down, which is
normally a good sign for the metal.
Still, most demand for silver comes from industry, making a
rally unlikely until the global macroeconomic picture brightens a
bit. The same holds true for platinum, whose price is anomalously
cheaper than gold but restrained by perceptions of anemic demand.
These industrial metals may be triggered to rise at the next signs
of an upturn, but somebody or something needs to pull the