Gold rose to the highest in almost two weeks on Wednesday after top central banks announced a co-ordinated move to avoid a global liquidity crunch, and the dollar fell. Centrals banks from the world's leading economies, including the US Federal Reserve and the European Central Bank, said they had agreed to lower the cost of existing dollar swap lines by 50 basis points, as well other measures.
Spot gold rose more than 2 percent to $1,749.54, its highest since November 17. It was $1,744.79 per ounce at 1525 GMT, from $1,714.29 late in New York on Tuesday. US gold rose 1.8 percent to $1,744.50. Gold had reversed losses earlier after China moved to ease credit strains, by cutting the reserve requirement ratio for its commercial lenders for the first time in nearly three years.
"Today's central bank decisions - both from the Fed, ECB and other western banks, and separately from the People's Bank of China - are unambiguously good for gold in that they're inflationary," said Matthew Turner, precious metals strategist at Mitsubishi. "Gold tends to go up when the inflationary outlook worsens." Traditionally, gold can benefit in times of economic or financial market uncertainty, because of the protection it can offer if inflation picks up and because of its immediate convertibility into hard currency.
But in recent weeks it has shrugged off its safe haven status, and tended to move in tandem with riskier assets, like equities. The Chinese measure and the co-ordinated move by the major central banks of the developed world come amid growing concern that the global economy is on a slippery slope as the eurozone struggles to decisively tackle its two-year-old debt crisis. "In the last couple of weeks gold has been behaving like a risky asset, and equities and commodities are up," Commerzbank analyst Daniel Briesemann said.
The precious metal is currently more positively correlated to the stock markets than it has been at any time in the last year. But concerns about the eurozone remain. Two years into Europe's sovereign debt crisis, investors have fled the eurozone bond market, European banks are dumping government debt, south European banks are bleeding deposits and a recession looms, fuelling doubts about the survival of the single currency.
"We are now looking at a true financial crisis - that is a broad-based disruption in financial markets," Christian Noyer, France's central bank governor and a governing council member of the European Central Bank, told a conference in Singapore. Italian and Spanish bond yields resumed their inexorable climb towards unsustainable levels on Wednesday, as markets assessed the rescue fund boost as inadequate. Palladium rose more than 5 percent to a high of $622.50, and was $608.22 at 1526 GMT. Silver was up 1.9 percent at $32.51, platinum rose 1.1 percent to $1,547.49.
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