Gold prices declined sharply today as the US dollar gained against the euro, pushing down the yellow metal following last week’s rally that saw it climb to seven week highs, supported by a rally in global equity markets that increased investors’ appetite for riskier assets such as precious metals and an improved outlook for the Greek fiscal crisis following a successful bond issue and the introduction of a new economic austerity package.
Europe’s single currency, which has been under mounting pressure as Greece’s debt crisis unravelled, weakened today after the country’s Prime Minister George Papandreou asked US President Barack Obama to assist with fixing Greece’s economic problems by imposing stricter regulations on hedge funds and currency traders. Papandreou said that the situation could lead to another economic downturn and the consequences of a weaker euro would spread far beyond the euro zone, leading to a rising US trade deficit as a result of a weaker euro.
Papandreou and Obama are set to meet behind closed doors in Washington, DC today.
Last week, Greece introduced new measures to reduce the ballooning budget deficit including pay cuts for public servants and tax hikes, while conducting a successful bond issue to raise €5 million to meet its near-term commitments.
Chinese demand is also a concern after Director of the country’s State Administration of Foreign Exchange Yi Gang said its investment in gold will now be limited due to a “few factors,” including the inconsistency of the yellow metal’s price over the past 30 years that reduced its appeal as a long-term investment. China, which is the world’s largest producer and the second bigger consumer of gold behind only India, currently has US$2.4 trillion in foreign exchange reserves, including holdings of 1,054 tonnes of gold compared to holdings of 600 tonnes in 2003.
Gang concluded that gold will not be China’s primary investment focus, currently making for roughly 1.5% of its total foreign exchange reserves.
Gold fell to US$1,116/oz today, while silver and platinum dropped to US$17.04/oz and US$1,582/oz respectively.
Specialty chemicals firm Johnson Matthey (LSE: JMAT) was flat.
Midcaps followed. Silver producer Hochschild Mining (LSE: HOC) was at the bottom of the pile with a 3.5% loss. Gold miner Petropavlovsk (LSE: POG) and Aquarius Platinum (LSE: AQP) shed 2.5% and 2.2% respectively.
Kyrgyzstan focused gold explorer and developer Chaarat Gold Holdings (AIM: CGH) and Turkey and Saudi Arabia operating gold explorer KEFI Minerals (AIM: KEF) led the juniors, climbing 8,5% and 7% respectively.
Philippines focused Metals Exploration (AIM: MTL) also did well, adding 4%.
Western Australia operating Norseman Gold (AIM: NGL) was down 4%.
Disclosure: The author holds no positions in the company