Alarmed at the plunging value of their currency, Europeans are leading an exodus out of the euro and into gold.The burgeoning demand pushed gold for delivery this month up 1.6% on Tuesday to settle at an exchange-record $1,219.90 on the Comex division of the New York Mercantile Exchange. The gains continued in electronic trading after the close, where gold reached $1,233.50 an ounce. The euro has slumped 13% against the dollar in the past six months and five percentage points of that has come since the beginning of May. The sharp decline has pushed investors around the globe into safe havens—from the U.S. dollar to Treasurys—but among the most popular is gold. Anecdotal evidence shows Europeans are leading the charge. ETF Securities, a London-based fund manager, had an inflow of $490 million into its gold-backed funds in the past two weeks. All of that came from European investors, said Nick Brooks, the firm's head of research and investment strategy. The flight to gold "is not a short-term trend," Mr. Brooks said. "Sovereign debt problems are going to be with us for a longer term." Gold has been hitting records in euro terms since February. On Tuesday, it reached €960.41 in London, a rise of more than 26% this year, more than twice the gains of gold in dollar terms. Signs of renewed wariness about Europe's fate emerged across markets. The Dow Jones Industrial Average fell 36.88 to 10748.26. In the credit markets, a closely watched measure of banks' reluctance to lend, the gap between the London interbank offered rate and overnight indexed swaps, called the Libor-OIS spread, rose to 0.2 percentage point, an eight-month high. And Treasury debt, seen as among the safest investments, continued to thrive. The government had no trouble finding buyers at an auction of three-year Treasury notes. And the 10-year Treasury note gained, pushing its yield down to 3.53%. Meanwhile, at the Austrian Mint in Vienna, demand for gold coins and bars has soared. Since April 26, the mint has sold 243,500 ounces of gold, compared to 205,300 ounces in the entire first quarter, said Kerry Tattersall, marketing director for the Vienna-based organization. "It's been exclusively European," Mr. Tattersall said. "I've seen no orders from America, no orders from Japan," he said, a change from the first quarter. The Mint sells Vienna Philharmonic gold coins weighing up to one ounce and gold bars weighing up to one kilo, mainly through banks in Austria and Germany and gold dealers around the world. "We saw very strong flows of money coming from European customers," said Adrian Ash, head of research at BullionVault, an online gold trading service provider. So far in May, 39% of BullionVault' The euro's fall was halted only briefly early this week, when European governments announced a $1 trillion bailout package aimed at supporting troubled nations. The euro clawed back some ground, rising to about $1.30, but has since retraced much of its gains and was at $1.2683 in late U.S. trading. The flight by Europeans into gold indicates that they still harbor serious concerns about the potential consequences of the bailout, such as rising inflation or slowing growth, both of which would harm the value of their relatively new currency. As long as Europe's problems persist, gold could still rise against the euro. Hedge funds such as Paulson & Co. have also loaded up on gold assets this year. Gold is typically seen as a hedge against a fall in paper currencies, and the most watched of those is the greenback. Many investors who piled into gold last year did so amid worries that the U.S. dollar would be the currency in trouble. But with Europe struggling and the U.S. looking relatively strong, the euro has become the target. "You'll miss the whole picture by focusing only in the U.S.," said Juan Carlos Artigas, investment research manager for the World Gold Council. Gold and the dollar have, in fact, been generally rising and falling together since April 16, said Walter Zimmermann, chief technical analyst of United-ICAP. "Our understanding for this has to do with the whole debacle in the euro zone," Mr. Zimmermann said. "The U.S. dollar and gold are the two big beneficiaries of the flight of capital from euro-based investments. For all the rising demand, gold remains well below its inflation-adjusted high: $2,309.18 hit in January 1980. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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