Gold buoyed by currency and equity outlooks

In the Lead: “Yes, We Cain? Ummm…No”

Once again, optimism and risk taking returned to the scene as dollar sellers pushed the US currency 0.40 lower on the trade-weighted index and the euro along with European equities gained value ground. Euro-centric speculators lifted the common currency above the $1.388 level this morning, emboldened by hopes that the G-20 meeting in Paris will bear some resolution fruit to the now way-too-extended crisis that has gripped the continent for most of this year. The euro was setting the trading stage for the best week it has enjoyed since January. In trader terms, that’s like…10,000 BC.

The top agenda items to be tackled in Paris by the G-20 include enhancement of the IMF’s “firepower” (read: lending abilities). The word “special” has been used in connection with the issuance of certain potential IMF bonds. It is unknown at this juncture if the word “special” refers to gold or to something else. As well, the size and scope of the EFSF- the European version of TARP- will come to be discussed during the next couple of days. However, some market observers do not place as much importance on the eventual G-20 communiqué as they do on the one to come out of the meeting of European finance ministers, which commences next weekend.

The G-20 tete-a-tete comes amid a fresh batch of downgrades of various types, from various rating agencies. First, Spain’s sovereign debt rating was trimmed by S&P. Then, markets witnessed a jump in Italian debt premia over that of Spain. Later, Fitch’s Ratings placed negative reviews on several European banks and actually downgraded four of them – UBS and RBS among them.

Such creditworthiness views did serve to temper some of the optimism about the outcome of the Paris meeting and also capped the advances in precious metals to some degree. This was somewhat apparent by the 10:30 hour in New York, when gold’s opening gains were trimmed to about only $3 per ounce (and silver’s to a dime), despite a further dip in the greenback on the index. Anyway, let’s continue.

Buoyed by the aforementioned better outlook among currency and equity specs, the commodities’ complex also received a lift and exhibited a spring in its volatility-sprained step. We thus had copper advancing 2.6% and crude oil rising 3.2% as Friday morning’s trading action got underway. Spot gold rose eight-tenths of a percent and touched the $1,685 pivot level once again as buyers made a return almost on “cue” (one day up, one day down, one day…you get the picture).

It has not taken too long for uber-optimism to also make a comeback among traders and media-quoted…bullion vendors. They are currently showing the highest level of optimism about the yellow metal since gold underwent its largest price decline in three years. The resurgence in positive expectations comes despite notable losses that have been sustained last month by some of the most prominent bettors in the space. Their shareholders continue to pose a potential selling threat to bullion if their mood sours further after last month’s dismal performance by a certain fund.

Other market observers opine that the whole complex in commodities is bottoming out and that better days lie ahead. Still, there is a school of thought that sees a multi-month correction in gold lasting…many months. That would be about seven or eight more, to be precise; complete with potential dips down to the $1,400-ish price level. Today, as if on cue after the devastating environmental disaster story about gold mining in Peru that we covered two days ago, damage control-flavored statistical data was released highlighting…gold mining in Peru.

In particular, the World Gold Council (sponsored by global miners) finds that gold mining plays “an important role in [Peru’s] government revenues, with the government collecting around $800 from [the] four mines in 2009.” The four largest mines operating in the country account for ten percent of Peru’s foreign direct investment. However, the impact that is being highlighted in the report addresses only the positives of employment and local procurement.

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