Gold News

Gold Prices Recover 0.5% Dip as Dollar Pauses on Central-Bank Rumors; "Pandemonium to Follow"

The Gold Market recovered an overnight dip of 0.5% as the US open drew near on Tuesday, taking the price of physical Gold Bullion within $1.50 of Monday's new record high.

Global stock markets continued to drop, meantime – losing 2% in Hong Kong – as soft commodity prices dipped together with base metals and the US Dollar rose from yesterday's three-year lows to the Japanese Yen beneath ¥103.

Rumors spread of possible open-market intervention from non-US central banks. Here in London the AM Gold Fix recorded its seventh all-time high in nine at $981.75 per ounce.

"Despite hitting another record high [last week], investor activity remained subdued," says today's note from Mitsui on the Commitment of Traders data for Tues 26th Feb. "It leads us to suggest that the [futures & options] exchange movements since January indicate a metal that is slowly, calmly and resolutely moving towards $1,000.

"The move is not parabolic or meteoric; rather, the trend has been healthy since New Year. But once that Gold Price [of $1,000] is printed, expect pandemonium to follow."

Wholesale inflation for European businesses was reported today at a 17-year record in February, while two Opec delegates said the oil cartel will certainly not be raising its output ceiling when it meets tomorrow.

US crude oil futures for delivery next month rose to $102.48 per barrel, erasing earlier losses. The broad FTSE Eurofirst 300 index of leading blue-chip stocks dropped 1.0% by lunchtime in London.

Premier Foods, which spent £1.2 billion ($2.4bn) buying the previously privatized RHM group in March 2007, announced a pre-tax loss for 2007 of £73.5 million ($146m), blaming "the high level of input cost inflation and the potential for further inflationary pressures in 2008."

But after talking tough on inflation, Europe's central bankers today switched direction, with three leading policy makers saying they were "increasingly concerned [and] vigilant" on the fast-sinking US Dollar's impact on Eurozone exports.

"In the present circumstances, I consider very important what has been affirmed and reaffirmed by the US authorities," European Central Bank chief Jean-Claude Trichet reassured the press this morning, "including the secretary of the Treasury and the president of the United States of America, according to whom a strong-Dollar policy is in the interests of the United States."

Whether the ECB is now beginning to discuss intervention or not, the US Dollar this morning stemmed its record losing run to pause at $1.5216 per Euro and capped the British Pound below $1.9870.

That helped the Gold Price in Sterling briefly touch a new all-time high of £497.75 per ounce. For French, German and Italian investors looking to Buy Gold today, the price came within €1 of a new record above €650 per ounce.

"Friday's price action hinted at indecision," says the latest Gold Market note from Scotia Mocatta, the bullion dealer, "but [on Monday] gold managed to reach yet another all time high and $1,000 is just 2% away.

"There are two warning signals that have us watching the Gold Price action closely," the note goes on. "Total open interest [in the gold futures market] at 508,000 continues to be well off its early January high of 610,000 – which hints that some of the push higher has been due to shorts closing out their positions and not just longs building on theirs.

"The second concern is the overbought readings from short-term stochastics. [But] all in all, though we think gold is overdue for a correction, technicals continue to point to both near and medium term strength."

Looking at the Gold Market's fundamentals meantime – most especially the risks and returns of holding cash – the Reserve Bank of Australia today raised its key lending rate to a 12-year high of 7.25%, warning that inflation in the cost of living will "remain relatively high in the short term, and will probably rise further in year-ended terms, before moderating next year."

"This is a difficult day for working families," commented Australian prime minister Kevin Rudd in Canberra. "It makes it very tough."

The Aussie Dollar actually fell 0.6% on the rate hike, however, after RBA governor Glenn Stevens said the increases since last summer have now been "substantial" – suggesting a pause next month.

"Previously investors were taking too sanguine a view of prospects for the global economy," said an analyst at Credit Suisse to Reuters. "Now investors are selling currencies where interest rates are rising as they are thinking that this could cause slower growth and the risk of recession in the future."

Elsewhere in the precious metals market, platinum prices meantime shot to new record highs to gain almost 50% for 2008 so far after this year's supply-demand gap was put at two million ounces by HSBC Bank.

Crimped by the ongoing power cuts affecting South Africa – the world's No.1 platinum miner – global supplies will trail demand by at least 600,000 ounces according to Suki Cooper at Barclays in London. Impala Platinum last month put the gap at 620,000 ounces.

But record high prices for the industrial metal make platinum vulnerable to substitution with other metals, warns Wolfgang Wrzesniok-Rossbach at German refining group Heraeus.

Forecasting a 30% drop in platinum jewelry sales worldwide, "I also expect, not immediately but over some months, the demand from the auto industry to go down," he told Bloomberg today. "I think they are speeding up substitution" of platinum with palladium for use in catalytic converters, he added.

The cheaper metals costs barely one-fourth as much per ounce, but its key position in the auto-industry was destroyed almost instantly in the late 1990s when Russian exporters, attempting to squeeze the palladium market, forced a mass switchover to platinum instead.

Meantime in the financial sector, UK-based fund manager Schroders today reported a net outflow of £10.6 billion ($21bn) from institutional clients in full-year 2007.

US bond insurance giant Ambac has chosen not to split its business in two, says the Financial Times. The plan was mooted by Warren Buffett, the legendary "value" investor, as part of a much-needed refinancing package.

Rescuing Citigroup meanwhile – the Western world's largest bank – will take "a lot more money" reckons Sameer al-Ansari, CEO of $13 billion sovereign wealth fund Dubai International Capital.

Referring to Citigroup's $3 billion sale of equity to the Kuwait Investment Authority, the 4.9% stake taken by Abu Dhabi's state-owned wealth fund, and the fresh injection of cash from Saudi prince Alwaleed bin Talal, "it's going to take more than that to rescue Citi," al-Ansari told a conference of private equity investors overnight.

And as for Warren Buffett, the Sage of Omaha says US stocks remain "not cheap" enough for him to start buying yet. "By any common sense definition, we are in a recession," he told CNBC yesterday.

"Business is slowing down. We have retail stores in candy, home furnishings and jewelry [in the Berkshire Hathaway fund]; across the board, I'm seeing a significant slowdown."

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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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