Gold Rallies to 4-Session High as Inflation-Stimulus Heads for US, China and Britain
Gold recovered one-half of an early 1.5% dip in London on Wednesday, trading $5 below Asia's four-session high of $818 per ounce as crude oil rose together with European stock markets.
The Euro dropped a cent to the Dollar and the British Pound slipped almost 1.5¢.
The Shanghai stock market jumped more than 7% – its best one-day gain in four months – on rumors of a post-Olympics stimulus package worth $58 billion.
"With developed market equity markets struggling to achieve consistent gains," writes Manqoba Madinane for Standard Bank, "crude oil volatility – coupled with currency market uncertainty – should focus investors' attention on precious metal market developments."
Government bond yields held flat this morning, but "investment grade credit spreads have widened," as Madinane notes.
In the US mortgage market – where loan applications fell 1.5% last week according to new data, down by one-third from mid-Aug. '07 – the average 30-year loan now costs 2.8% above benchmark US Treasury bond yields.
"The spread had been about 1.8 percentage points," says Greg McBride, senior analyst at BankRate.com.
"[So] for at least the next few years, we're in a world of wider credit spreads. Even once the credit crunch finally gets put to bed, that trend will not reverse itself overnight."
Here in the UK, gross mortgage lending rose 5% last month from June's record low, said the Council of Mortgage Lenders today.
Total credit creation, meantime, slowed by one-third from June's all-time record of £51 billion ($95bn) – of which 80% was borrowed by financial brokers and hedge funds.
July's new private-sector debts still took the six-monthly average of M4 Lending to a fresh record – twice the level of three years ago – even as "labor demand softened...investment intentions declined [and] there was a further pronounced deceleration in construction and services output," according to today's Business Conditions Survey from the Bank of England.
In the United States, where inflation in wholesale prices reached a 27-year high in July, "millions of Americans are already suffering," says today's editorial in the New York Times.
"We fear millions more will be hurt before this crisis ends. They cannot wait until after the election for help."
The newspaper calls for Congress to fast-track $4 billion in state and city grants to buy up empty homes, and also to "start crafting the next stimulus bill" straight away, focusing on food stamps and infrastructure projects "like repairing bridges and roads" instead of tax rebates.
The NY Times doesn't mention US interest rates, but the political consensus against reversing the current 3.6% negative yield on cash savings is clear.
Back in the Gold Market, meantime, "physical demand is robust," says Afshin Nabavi at Swiss refining group MKS, speaking to Bloomberg today.
"We've not seen this level of demand for some time."
Patrick A. Heller, a US coin dealer, writes at Liberty Coin Service how the current surge in private-investor demand means "premiums have jumped significantly" as the Gold Price fell 20% from mid-July.
"Both the American Eagle and South Africa Krugerrand premiums have jumped about 2% relative to gold in just the past week. Canada one-ounce gold Maple Leafs are up about 1%.
"Purchasers of such coins may have to wait three to five weeks before the coins are available to fill their orders." (Prefer not to wait? Rather not pay a premium? Want the same security enjoyed by the world's largest gold bullion traders? Learn more at BullionVault now...)
India gold demand has also leapt on the recent low prices. It accounted for 20% of total world gold sales last year.
"Indian jewelers are paying gold importers more than double last month's premiums," reports Reuters from New Delhi, "as they scramble to meet a resurgence in demand stoked by...the approach of the Diwali festive season [in late October]."
Dealers say the premium paid to India's gold importers have reached $1.80 per kilo, up from 80-85 cents last month.
"Gold imports this month will be close to 50 tonnes," reckons Harish Galipelli at local brokers Karvy Comtrade.
One gold dealer interviewed by Reuters in Chennai says imports could rise even further, overtaking last year's best monthly total of 79 tonnes.