Gold News

Gold "Overdue a Correction" Says Jim Rogers, Unleveraged Investors Buy as Price Hits Multi-Month Lows

PRICES to buy gold with Dollars rallied from their lowest levels since late August on Wednesday morning in London, recovering 0.7% from yesterday's drop to $1662 per ounce.

Tuesday's drop came as the S&P ratings agency upgraded Greece from "selective default" to "junk" status, following payment of the latest €34.3 billion in new loans from Athens' Eurozone partners.

Versus the Dollar the Euro leapt to its highest level since May. The gold price for Eurozone investors sank to €1255 per ounce – a 6-month low almost 10% beneath October's new record high.

US Republican speaker Boehner meantime referred to a "Plan B" for $1-million earners in the ongoing argument over 2013's looming fiscal cliff.

A blog on The Economist website says Democrat president Obama has agreed to switch the Consumer Price Inflation index tracked by Social Security payments to a lower measure, resulting in slower benefit rises.

"Gold on any kind of historic market basis is overdue for a nice correction," CNBC was told by investment author and commodities-fund manager Jim Rogers overnight.

"It's been correcting for 15-16 months now, which is normal in my view. It's possible that gold's correction is going to continue for a while longer."

Tuesday saw a switch from January to February contracts in a large number of short (ie, bearish) bets on the gold price held by leveraged speculators in the US derivatives market.

Holdings at physically-backed gold trust funds traded on the stock market rose to new all-time records, according to Bloomberg.

Users of BullionVault also moved to buy the drop in prices, with previously quiet trade growing strongly as gold fell Tuesday.

"Good support is seen at $1672.50 [and then] $1661.64," says Commerzbank's Axel Rudolph in Frankfurt in his weekly chart analysis.

"Failure at [those levels] would push the June high at $1641.01 back to the fore and neutralise our bullish outlook.

Silver prices meantime bounced off a 6-week low at $31.40 per ounce Wednesday morning, as world stock markets reached 17-month highs on Reuters' data.

Long-dated US bonds also ticked higher, nudging 30-year Treasury yields back below 3.00% per year.

A small but growing number of Japanese pension funds are buying gold as a hedge against zero-bond yields and the long-term decline in Tokyo equities, says a report in today's Wall Street Journal.

"By diversifying currencies, we aim to reduce risks associated with them," the WSJ quotes Yoshi Kiguchi, chief investment officer at Okayama Metal & Machinery Pension Fund.

It began investing in gold this March on behalf of the 260 small and mid-sized company pension schemes it runs.

Looking at Eurozone interest rates, "On balance a further ECB rate cut is possible," says the London-based Capital Economics consultancy. But "this would not materially improve the economic outlook and might even make it worse.

"Either way, yields on safe assets like German two-year bonds are likely to remain negative for some time."

Cutting Swedish interest rates on Tuesday for the fourth time in a year in a bid to keep exports competitive in the Eurozone by weakening the Krona, "It's very, very important to ensure that household debt doesn't go up [further]," said Stockholm's chief central banker Stefan Ingves in an interview.

"We're going to have to keep a very, very close eye on that side, probably for several years to come."

A week after China's foreign-exchange administrators removed the $1 billion cap on Chinese investments by overseas governments, central banks and sovereign wealth funds, "What was sauce for the goose should also be sauce for the gander," writes Simon Derrick at Bank of New York Mellon today.

Regularly accused by US politicians of being a "currency manipulator", China bought some $27 billion of Japanese assets in 2010. The Yen rose by 11% against the Dollar, notes Derrick, denting Japanese exports.

"By continuing to open up their markets to the official sector overseas," he says, "China is slowly levelling the playing field. For those of us looking for any small signs of a long term easing in the 'currency wars' this is encouraging."

Continuing to peg the Swiss Franc at €1.20 by creating and selling Francs to buy Euros, "We have said clearly that we are not excluding any measures that can help us enforce our policy," said SNB chairman Thomas Jordan last week when asked about the possibility of the central bank taking its key interest rate below zero.

The Reserve Bank of Australia would not rule out Swiss-style currency intervention "under exceptional circumstances" said government Glenn Stevens overnight.

Minutes from the Bank of England's latest policy meeting meanwhile show 1 member voting for a fresh dose of quantitative easing, over and above the existing £375 billion target.

That new money creation, used almost exclusively to buy UK government bonds since launching in March 2009, now equates to more than one third of all gilts in issue.

The London Gold Market Report is the daily market review from BullionVault, the world's largest physical gold and silver market for private investors. A full member of professional trade body the London Bullion Market Association, BullionVault publishes the LGMR every day that the market is open, bringing you insider comment and analysis from the very center of the world's $240 billion-a-day physical gold trade, and putting the latest gold price action into its wider financial and economic context

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