Gold News

Gold Comes within 0.3% of $1000 as Dollar & Stocks Sink, Oil Surges; Mining Supply Falls Yet Again

The spot Gold Price came within 0.3% of hitting $1,000 per ounce in London on Thursday as the US Dollar sank to new record lows, oil traded further above $110 per barrel, and world stock markets sank.

"Concerns in the credit market, persistent Dollar weakness, and gradual acceleration of inflationary pressures is providing a foundation of support for gold," says James Steel of HSBC.

Only on Tuesday, Steele warned that the Federal Reserve's $200bn Aid Package for New York's biggest banks would support the Dollar "and therefore weigh on Gold", calming financial markets and "reducing the need to purchase bullion as a safe haven."

But in Tokyo today the Nikkei stock index closed 3.3% lower as the Hang Seng in Hong Kong dropped 4.8%.

The FTSE100 here in London lost 1.8% at the opening after Carlyle Capital Corp. – a hedge fund run by the US Carlyle Group – said it expects creditors to seize all of its remaining $21.7bn portfolio of mortgage-backed investments.

The fund failed to meet margin calls from its brokers last week. Shares in CCC sank 70% at the Amsterdam stock exchange this morning.

"Carlyle's troubles have amplified fears that billions of dollars of depressed mortgage-backed securities will flood the market, reducing their value even further," notes Toby Anderson for the Associated Press.

Over on the currency markets today the Euro spiked above $1.56 to reach its 11th new lifetime high in the last 13 sessions.

The Dollar also sank against the Japanese Yen, dipping below ¥100 for the first time since the fall of 1995.

On the world's commodity markets, meantime, the sinking Dollar added fresh impetus to base metals, energy prices, and all soft commodities barring wheat.

"We are in the early stages of an extended bull market on commodities," reckons Christopher Wyke at Schroder Investment Management. "Depleting resources and environmental controls will further depress supply and push up prices.

"As the US currency falls, commodity prices – mainly quoted in US Dollars –will be attractive for Asian nations."

China and most south-east Asian economies remain "pegged" to the Dollar, importing inflation in the cost of living as they devalue their currencies to remain competitive on world export markets.

That's why in China "inflation is growing at its fastest pace in 11 years," notes Dan Denning of The Daily Reckoning today. "Chinese consumer prices were up 8.7% in February. Food costs were up a staggering 23%."

Most petro-rich states of the Opec oil cartel continue to peg their currencies to the US Dollar, too. Today US crude oil futures for delivery in April touched $110.70 per barrel, yet another fresh all-time record for the front-month contract.

Oil has broken a new record high every day this week, but "current market activity has nothing to do with spot fundamentals," reckons Tom James at Liquid Capital Markets in London.

"[The oil] market is now just struggling to absorb tens of billions of dollars of fresh, mainly long-only investment."

Tokyo gold futures meantime slipped 1.2% against the Japanese Yen today, but they rose almost $14 per ounce in US Dollar terms to equal $995.82.

And on the supply side this morning, South Africa's official statistics agency confirmed that gold-mining output from the world No.2 fell 16.5% year-on-year in January, driven lower by the power shortages that closed the entire mining industry for five days late in the month.

Overall mineral production fell 10.7% from Jan. 2007. The gold-mining industry in South Africa is still only receiving 95% of normal energy supplies.

Last year the underlying trend in global gold-mining output – now shrinking fast thanks to surging costs, lower ore grades and a lack of new discoveries – cut South African production by 7.4%.

Global gold mining output fell by 1% in 2007 according to the GFMS consultancy. None of the top five gold-mining companies managed to increase their production.

Whereas the US money supply, in contrast, is now expanding by more than 15% year-on-year according to the Federal Reserve's MZM data series.

The world supply of Euros is growing by 11.5% year-on-year, while the United Kingdom has seen double-digit annualized growth in the Sterling money supply every month for the last two years running.

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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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