Gold News

Gold peeps above $635 as Japanese Yen sinks

Gold poked its head above $635 at the start of London trade today, after consolidating yesterday's $10 rise overnight in Asia.

The February gold contract in New York climbed to a 3-week high on Wednesday. But these higher prices have invited profit-taking by some physical dealers in Indonesia and Thailand, according to Reuters.

"I must say demand from India is quite good but there are sales of scrap in Asia. That's why the price can't go much higher," said one dealer in Singapore.

Spot gold still opened today's European session much higher from last Thursday, however, climbing 3.7% for Dollar and Euro investors. Sterling buyers were 1.7% better off in gold. The price in Yen for Japanese investors stood 4.4% higher!

The benchmark gold futures contract rose to its highest price since July after the Bank of Japan kept interest rates on hold at 0.25% for another month. The Nikkei stock index hit a 9-month high on the news.

The Yen, however, fell to a four-year low against both the US Dollar and Sterling. That's why "the technical trend has strengthened," said a Japanese analyst to Reuters. "Gold prices in general were [also] helped by the recovery in oil prices."

Yes, oil has stepped up from its 19-month low below $50 per barrel on forecasts of a cold snap in the north-eastern United States. But gold and oil are NOT – repeat NOT – moving together at the moment.

Since Nov. '06 – when gold last traded below $600 per ounce – oil has dropped 20% of its value. The CRB index of the wider commodities sector has now given back almost its entire gains of the last two years.

"My motto [in gold] is buy the dips," says Adrien Biondi, global head of precious metals at Commerzbank International SA in Luxembourg. "The fact that there is [gold] buying around $600 and two years ago there was buying around $300 tells me the industry has accepted the higher price."

Elsewhere on the currency markets, Sterling just made a new three-year high versus the Euro above €1.520. Last week's interest-rate hike in the UK – plus its runaway inflation data on Tuesday – have knocked gilt prices lower, making Sterling yields the most attractive of any major currency today.

Only Australian government bonds offer more to developed world bond investors. The gap between German and UK yields on short-dated government debt now stands at 1.65%.

That's wide enough to drive a bus through compared to the tiny returns many professional investors are earning for their clients right now. But could the cross-Channel "carry trade" become a crowded bet in 2007...?

As long as it keeps paying, no one will care. But when it stops making sense – click here to read on...

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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