Risk-Off As Hopes of Debt Crisis Resolution from EU Summit Fade

20-Oct (USAGOLD) — Gold has fallen deeper into the range as fading hopes that a solution to the European sovereign debt/banking crisis will be revealed at this weekend’s EU summit. The rise in risk aversion weighed on the euro and stocks, lifted the dollar, which in turn pressured the yellow metal.

Die Welt hinted this morning that there was a chance that the EU summit might be delayed. That assertion was refuted by EU officials, but ongoing disagreements between Germany and France have been increasingly on display this week. This leaves many investors thinking that when the closing gavel falls on Sunday, that despite the assurances of 2-weeks ago, Europe still won’t be any closer to a real solution to its woes.

This is quickly becoming a credibility issue; as the troika is increasingly being seen the purveyor of hollow assurances and false hopes. At some point, the market may just give up on them; and that’s when all bets are off. Once credibility is lost, it is frequently very difficult to regain.

While rising doubts have created a risk-off environment, if fears of systemic risks suddenly rise as a result of the troika’s failure — or inability — to act, the safe-haven aspect of physical gold would likely be catapulted back to the fore. For now, we continue to see solid interest on dips within the range.

• US Philly Fed index rebounded to 8.7 in Oct, well above market expectations of -9.0, vs -17.5 Sep.
• US existing home sales -3.0% to 4.91 mln in Sep, about what was expected.
• US leading indicators +0.2% in Sep, in line with expectations, vs +0.3% in Aug.
• US initial jobless claims -6k to 403k in the week ended 15-Oct, vs upward revised 409k in the previous week.
• UK retail sales +0.6% in Sep, above market expectations, vs negatively revised -0.4% in Aug; 0.6% y/y.
• Germany PPI +0.3% m/m in Sep, in line with expectations; 5.5% y/y.
• Switzerland trade balance CHF1.9 bln in Sep.
• Japan leading index (revised) -0.3% m/m in Aug, vs -0.8% previously; coincidence index revised higher to 0.5%.