Gold News

Spot gold rises against falling Dollar; Tokyo futures hit $670

Spot gold prices held steady in Asia on Thursday after leaping 1.1% versus the Dollar in late US trade.

Against the other major currencies, gold managed to recover Wednesday's opening levels before rising to fresh 2-week highs at the opening in Europe today.

Last night's jump came in response to the US Federal Reserve voting to keep Dollar interest rates on hold at 5.25%.

The Fed also dropped all reference to "additional firming" from its policy announcement – leaving the markets to expect lower US rates ahead.

On Wall Street, the Dow shot 1.3% higher. Treasury yields sank as bond prices rose. Gold went from $657.50 to above $665 per ounce. (Shouldn't gold move in opposition to bond and stock prices? Click here to find out...)

"The positives just seem to be stacking up, don't they," says Darren Heathcote at Investec in Sydney.

"It's all lining up to a better picture for gold. It's going to encourage investors to take a plunge.

"Sustainable? Certainly it looks like it for the immediate future."

In the currency markets, the Dollar dropped to a two-year low versus the Euro. Falling fast against all Asian currencies, the Dollar also hit a 9-year low against the Malaysian Ringgit.

On news of rising retail sales in the UK, the Dollar just fell to $1.970 versus Sterling this morning.

That knocked the Sterling price of gold back to £337 per ounce. For Eurozone buyers, gold dipped to €497.

Gold's current trend of higher highs – and higher lows – continues against both currencies.

But for now, the Dollar price leads.

"The drop in US bond yields on the Fed statement is putting downward pressure on the Dollar against Asian currencies," said Osamu Takashima, chief analyst at Bank of Tokyo-Mitsubishi in Tokyo earlier.

"There's expectation investors will bring money into the region."

Investors should also expect money to move into gold, too.

Lower returns on US Dollars and US Treasuries reduce the opportunity cost of owning gold. History says that the metal rises against all currencies when savers and investors are punished by low real returns after inflation. (Click here to learn more...)

Hence the rise in Tokyo's key gold futures contract overnight. At one point, Tocom gold for delivery in Feb. '08 touched the equivalent of $670 per ounce.

And over in Mumbai, meantime, the Business Standard reports that India's forthcoming gold ETFs may struggle to find investors.

India's gold demand now accounts for one ounce in every five sold anywhere in the world. But the sub-continent's investors want physical ownership – rather than the "dematerialized" gold offered by exchange-traded funds (ETFs).

To solve this problem – and offer physical delivery - the banks and mutual funds running the 7 schemes due to launch this year are having to work fast.

"We have tied up with a few top Depositary Participants," says Rajesh Bhojani, president for sales at UTI Mutual Fund, "who on request by the investor would open a demat account within 24 hours."

"The physical delivery of gold on redemption is possible," says Sanjiv Shah, executive director of Benchmark Mutual Fund.

"New regulations are to be put in places."

Benchmark's new gold ETF has so far received the equivalent of $229 million. But even with physical delivery available at a cost, the scheme's core operations will only operate as a trust.

Just as with LyxOr GBS and StreetTracks GLD, investors will not actually own gold – rather, they'll only own shares "entitling" them to a portion of gold backing the schemes.

For more on pros and cons of different gold investments available today, click here now...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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