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08 November 2011

"The Italian Job" Moment Draws Ever Nearer For the Euro

The Gold market is currently firmly in the thrall of the European debt crisis, with investors fleeing to Gold in the face of a wall of uncertainty currently upon them.

Gold added over 2% in London trade on Monday as fears over Italy's ability to repay it's debt mountain crystallized into record euro era borrowing costs of 6.64%, even as statistics emerged showing the ECB had doubled its purchases of Italian debt in an effort to shore up confidence.

The continuing crisis in the Euro brings to mind the final scene in "The Italian Job". Michael Caine and his partners in crime at one end of a bus are teetering on the top of an Alpine cliff, counterbalancing a pile of stolen Gold at the other, dragging them over the edge. "Hang on a minute lads," says Caine as the film ends "I got a great idea. Err...".

Does any of this seem familiar? In the contemporary Euro remade version however, the Gold and the people appear to have swapped places. The lack of sufficient Gold at the front of the Bus and the weight of the debt laden people (countries) at the back are dragging it over the edge.

European efforts to get more weight in the front of the bus however in the form of investment from the Chinese, have so far proven unsuccessful, with the Greek political crisis adding further instability to the equation.

What makes "The Italian Job" analogy even more ironic is, that as aficionados of the 1969 British caper film will recall, the nationality of the Gold in the bus is actually Chinese. Funny how life mirrors fiction.

Gold has benefited enormously from this turmoil where it has reverted to true safe haven type. Especially on Monday as it became clearer that Italy looks more and more like it is in trouble, where the yellow metal traded within striking distance of $1800 per troy ounce.

Higher prices in Gold appear to have had interesting effects on the physical coin and bar markets where at availability of popularly held Bullion Coins such as Gold Sovereigns and Gold Krugerrands has increased, where as smaller 5 gram gold bars availability seems to have decreased.

5 Gram Gold Bar Volume

The below chart shows 5 gram gold bar availability within the price comparison system. It shows a significant decrease in available lots since the end of October.

1 Ounce Krugerrand Volume

The below chart shows 1 ounce krugerrand availability within the price comparison system. It shows a corresponding increase of gold bullion coins since the end of October.

While it is never a good idea to make too much of moves within a short period of time, the increase in volumes of Krugerrrands corresponding with higher Gold prices might indicate that some "private" holders of Krugers have been tempted to sell in the light of higer prices. This is also supported by the fact that the increase is largley due to higher availability of Gold auction lots.

Robust premiums remain on 5 gram gold bars, with premiums from 27.42% being asked on fixed price lots. Healthy premiums were also present at time of writing on 1 ounce gold krugerrands, with premiums from 4.21% being asked on fixed price Krugerrand lots.

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