Gold leaps as New York dumps oil

Gold surged $10 higher at the start of US trade today. Just as on Tuesday, it suddenly recovered its drip-drip losses from the European session.

But this time so far, gold's not given them back – and it's risen much further.

"The bounce in the currencies against the Dollar is giving gold a boost," says one US trader quoted by Bloomberg. Once again, the newswire misses the point.

Gold has bounced hard against all major currencies since New York opened. It's hit a 7-week high for Euro investors, and is approaching a six-month high versus the Japanese Yen.

Gold has also risen against the Pound Sterling – the strongest world currency at the moment. In short, the metal looks strong all by itself. Dollar weakness is only part of the story.

Today's surging gold price comes despite a plunge in the oil price. Back down to $50 per barrel on news that Saudi Arabia is set to increase crude output, oil looks awful on the charts today.

The 3-year uptrend in oil broke down in August last year. Up until then, gold had been trading right alongside. But it's now held above $600 per ounce for three months running. Oil in the meantime has dropped by 20%.

James Steel, metals analyst at HSBC Investment Bank, says gold may decouple from the other commodities and trade independently. The fact is, however, this new stage of the gold bull market began long before New Year.

Short-term, strong buying looks likely from Japanese investors between now and Friday if the Bank of Japan fails to raise interest rates tomorrow. The Yen today sank to a 13-month low against the Dollar, after press reports that the central bank may stick at 0.25%.

Overnight lending rates on Tuesday had climbed to their highest level since Sept. 1998, a staggering 0.343%. Thirty-five of 52 analysts surveyed by Bloomberg expected a hike. Now the Yen has fallen back, pushed Tokyo's benchmark gold contract – currently Dec. '07 – to its highest price in 6 months.

"I would think there is certainly a significant Japanese element that will look to diversify into something like gold as an anti-inflationary hedge," reckons an Australian analyst.

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