Drying up of liquidity poses a serious risk to all commodities, including gold

Precious metals, with gold taking the lead as usual, have lost ground as concerns over the Eurozone debt crisis have resurfaced putting upward pressure on the dollar. The higher-than-expected demand for ECB loans (€489bn was borrowed, analysts expected €293bn) has reignited worries over European liquidity. Our barometer of Eurozone money market liquidity (the Euribor/OIS 3-month spread) remains at elevated levels—a drying up of liquidity poses a serious risk to all commodities, including gold.