Gold News

Gold leaps yet again as New York opens

Gold rose steadily in the first half of European trade today, before leaping above $644 per ounce, its highest level of this year so far.

This sudden leap repeats the pattern seen since the start of January in fact, with the New York opening seeing a sharp rise in both spot and futures prices for gold.

And today, as previously, gold has risen versus all major currencies, proving that the move is driven by demand for gold – not simply an exit from the US Dollar.

Indeed, gold priced in Yen is now trading at its highest level since last May, back when gold spiked to a 26-year high against all leading currencies, reaching above $720 per ounce.

"The price action in gold looks quite good if you look at the chart," reckons John Reade, head of metals strategy at UBS Investment. "But until we take out the high of $645 we saw in early January, I wouldn't read too much into this."

"It has recovered nicely from the sharp sell-off in early January and I think it deserves to be in the upper half of the range of $605-$645."

Crude oil meantime has climbed back above $53 per barrel, supported by cold weather in Europe and the north-eastern United States. Militants in Nigeria are adding to the supply risks facing oil, after taking Western workers hostages.

The link between oil and gold is not as strong as the "inflation hedge" headlines in your daily paper make out, however. Last time gold traded below $600 per ounce, for example, oil was trading nearly 20% higher. Yet as oil prices collapsed in the late autumn, gold held steady thanks to strong physical buying on every dip towards the $600 level.

"People are searching for inspiration at the moment and the crude oil link has been working reasonably well for the last few days," said Simon Weeks, head of precious-metals trading at ScotiaMocatta in London to Bloomberg earlier today.

"It's an excuse for short-term fund activity."

Gold demand is due to strengthen as the Indian wedding season approaches. India investors will soon get their own exchange-traded gold funds (ETFs) too. That may or may not add weight to India's world-beating demand for gold. But what might short-termist fund managers in the West do now they've added to their long positions?

"Gold really needs to establish itself above that $642 level to maintain momentum and probably maintaining investor confidence," says Darren Heathcote of Investec in Australia earlier today. And yesterday's jump in gold prices failed hold, completing the pattern seen since the start of 2007.

That let the metal slip nearly $7 lower by the close in New York at $640 per ounce.

Behind the daily noise of gold up, paper currencies down however, the long-term outlook continues to gain friends.

"We see some upside potential for gold over the course of 2007," says Barclays Capital, late to the party but offering a strong analysis. "A series of key price determining factors are set to turn more positive for the metal...

"From a fundamental perspective, fabrication demand has shown signs of stabilising following last year's sharp fall and – barring another surge in price and volatility – demand is likely to consolidate and firm up gradually over the year."

If you'd like to read more serious analysis of the gold market's 2007 fundamentals, click here for BullionVault's January Report now...

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.

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