Gold’s wholesale market price fell further on Thursday in London trading, hitting its lowest level since July 8 at $1,537.50 per ounce — 19% below September’s record high — on what dealers called “long liquidation” and “pressure” from the euro zone debt crisis.
New laws in Japan were also blamed for forced sales during Asian trade, with bullion dealers obliged to report all physical transactions above ¥2 million ($25,600) to the tax authorities starting New Year’s Day.
Physical gold bullion flows in Europe are “very light — unsurprisingly for this time of year,” says Swiss refinery and finance group MKS. “[A] few accounts [were seen] bailing out on the break of $1,570” on Wednesday, MKS says, with “the rest of the move driven by illiquidity and forced sellers pushing themselves out as they push [the gold price] lower.”
On a London closing-price basis, “Support sits at the trendline off the October 2008 low, currently at $1,543,” says Russell Browne’s technical analysis for Scotia Mocatta, pointing to the uptrend in the gold price starting with the collapse of Lehman Brothers three years ago. That support level is “followed by the September  low around $1,533,” reckons Browne.
The euro sank 1.5¢ on Wednesday after new data showed the European Central Bank’s balance-sheet swelling to €2.7 trillion last week after making the first of its “unlimited” three-year loan offers to commercial banks. The euro fell again to a 10-year low against the Japanese yen.
Italy’s latest bond auction, for 10-year notes, went slightly better than the November auction. Today’s sale of 7 billion euros (about $9 billion) in long-term bonds went for 6.98% versus 7.56% last month. The total sold was less than the top range of 8.5 billion euros the Italian government was hoping for. Today’s auction is just two basis points below the 7% level that analysts believe is “unsustainable.”
European stock markets wobbled, but crept slightly higher in morning trading after finishing yesterday lower. But in the banking sector, “The main problem…is not a lack of liquidity, but a lack of trust,” says Commerzbank’s Christoph Rieger, head of fixed-income strategy in Frankfurt, speaking to Bloomberg. “There are no central bank tools that would force banks to extend credit lines among themselves.”
Pushing higher on its official benchmark level again on Thursday, the interbank lending rate known as LIBOR is now suffering the widest gap between the lowest and highest interest rates charged since the peak of the first financial crisis in March 2009.
“We maintain that a liquidity squeeze brought on by the ongoing debt problems in the euro zone would be one of the greatest threats to commodities,” says Marc Ground at Standard Bank today. “Gold, along with the other precious metals, succumbed to the downward pressure.”
“Risk-off conditions in the short term are putting pressure on the gold price,” says another London dealer in a note, “but plenty of the insurance reasons to be long of gold remain in place — and look set to remain so in January.”
Silver prices today flirted with 12-month lows beneath $26.80 per ounce, as base metals fell with agricultural commodity prices.
U.S. crude oil held just shy of $100 per barrel as the U.S. Navy warned Tehran it will “not tolerate” any Iranian disruption of shipping through the Strait of Hormuz, which Iran has threatened in retaliation at new international sanctions.
Adrian Ash of BullionVault contributed to this report.