Eurozone money markets which poses a considerable risk to all commodities, including gold

The pullback in Gold price we’ve been anticipating this week came earlier then we had expected. New York trading saw prices plummet, with Fed Chairman Bernanke’s address to Washington lawmakers the apparent catalyst. Investor reaction was largely due to Bernanke not making mention of any further quantitative easing and even highlighting that unemployment was improving more rapidly than expected. Consequently, markets expectations of liquidity growth (a major support for precious metals, and gold in particular) were dealt a severe blow, adding to the apparent finality of the ECB’s liquidity-enhancing measures (i.e. there was not hint at future LTROs).

It is interesting to note that the fall in gold price has also been accompanied by a turnaround in the Euribor/OIS spread, a measure of Eurozone money market liquidity. Ever since the first LTRO announcement in early December, this measure has been trending lower (an indication of easing conditions). Today the measure pushed higher. We will keep a close eye on this spread—if it should continue on an upward trajectory this could herald a freezing up of Eurozone money markets which poses a considerable risk to all commodities, including gold.

Implats issued a statement yesterday announcing an agreement with the union to end the four-week long work stoppage. The company plans to start phasing in production from next week Monday. However, it could take some time before production is at full capacity (which as pointed out yesterday could be below pre-work stoppage levels) as safety checks and medical screenings have to be conducted before operations can begin. Transport links to the mine were obstructed overnight, although this has not disturbed operations or the re-hiring process.