Gold Hits New Record vs Euro

Gold hits a new record in euro terms at €1375/oz as Spain further delays an eventual request for an official bailout and the euro consolidates against most currencies awaiting this inevitability.

Secession + Recession = Fresh Metals Expansion

There need not be actual secession of Catalonia from Madrid, but the continuing stand-off between the central government and the most indebted Spanish region over activating fresh funds to the autonomous state.

The just released 2013 budget from Madrid focuses sticks to spending cuts and taps €3bn from social security fund for liquidity purposes, reflecting efforts from PM Rajoy to avoid a formal bailout request from the EU.

Metals are now boosted by a powerful combination of classic eurozone uncertainty (Spain’s delaying OMT activation) and collective currency debasement by open-ended quantitative easing from the Fed and the Bank of Japan.

Silver has more scope to regain its record high as the positioning in the metal among speculators has more upside. The number of silver futures net long contracts in the Commodity Exchange (Comex) stands at 32,555, nearly 130% below the record high reached in 2004. Meanwhile, net longs in gold are at 191,000, less than 40% below the 2009 high.

As central banks find original ways to monetise their nations’ debt — ECB vowing to purchase unlimited amounts of eurozone bonds in the event a nation requests assistance & the Fed buys bonds indefinitely (until unemployment becomes more subjectively acceptable) — the case for metals grows in appeal. And with it, global short term rates remain near zero.

Industrial demand for silver and its eroding supply relative to gold also supports its price. People may desire gold, but companies need silver. Year to date, silver is up 22%, compared to 13% for gold. The gold/silver ratio could show further declines from its 52.0 level. In 2010, the year of QE2, silver rallied nearly three times as much as gold.  With gold/silver ratio expected to fall back towards low 40s and gold is seen regaining the 1850s, silver could well regain the 42.0-43.0 territory.