Gold should trade strongly in the current environment of heightened euro-aversion after the surprise move by the Swiss National Bank (SNB) to remove the EUR/CHF floor, ANZ Research said.
The move sent the spot gold price to its highest level in four months at $1,266.90, its strongest since September 8. It was last at $1,258.40 per ounce, down $3.30 on Thursday’s close.
“Gold has been a clear beneficiary of the safe-haven move, and the market reaction overnight has further highlighted the breakdown in correlation between gold and the euro,” ANZ said in a note on Friday.
“The divergence in performance between the two is due to the fact that gold has been reacting to the considerable uncertainty surrounding the European economy,” it added.
The prospect of a large quantitative easing programme from the European Central Bank – it is expected to be announced next week, has driven the euro lower – it was last at 1.1626 against the dollar.
Uncertainty in financial markets remains high as Greek elections and the ECB meeting loom – fresh fears of a Greek exit from the eurozone or considerable shake-up in the status quo has driven safe-haven demand into gold.
“The precious metal is behaving in a very similar fashion to 2012, the height of the eurozone crisis,” ANZ said.
The euro fell seven percent over the first half of 2012 while gold managed a small gain of three percent. Amid the subsequent recovery in the euro through the second half of 2012, gold managed to hold onto its gains while risk aversion remained heightened.
The capability of central banks to surprise markets has been highlighted over the past 24 hours. Gold may also be benefitting from a rotation out of the Swiss franc – the SNB’s move highlights a reduced willingness to be a major provider of safe-haven investments.
By reducing near-term interest rates to -0.75 percent, the bank is effectively dissuading investors from putting money into the Swiss franc, which should be beneficial for other safe-haven assets such as gold, ANZ said.
“The prospect for a further increase in liquidity by the ECB may also see some funds leak into safe havens,” it said. “The attractiveness of gold in this respect suggests an asymmetric effect on gold demand versus CHF in times of increased demand for safe assets.”
While the cost of holding gold is negligible, the Swiss one-year deposit rate has fallen to -0.5 percent overnight.
The yield on holding gold is effectively zero for most participants although a positive yield can be earned for those who are able to lend physical metal.
But a continued increase in gold-backed physical exchange-traded fund holdings is needed for a recovery in gold prices, ANZ still believes.
(Editing by Mark Shaw)
The post Gold price to rise on euro-aversion after SNB bombshell – ANZ appeared first on The Bullion Desk.
No comments:
Post a Comment