Gold News

Gold Holds $950 as US Bond Yields Near 4%, BRIC Nations Look to "Other Currencies, Other Instruments"

The Gold Price rebounded off yesterday's low beneath $950 an ounce in London dealing Thursday morning, trending down from Monday's 3-month high as world stock markets held flat and government debt prices fell.

News that Japan's GDP shrank less quickly than feared – but still at a record rate – between Jan. and April sent Tokyo's Nikkei index briefly above the 10,000-mark for the first time since Oct.

Crude oil futures meantime pushed up to new 7-month highs near $72 per barrel on news of a sharp jump in Chinese energy imports.

"Though higher inflation adds fodder to gold bulls, a rise in Gold Prices may be slow and steady from here on," says Pradeep Unni at Richcomm Global Services in Dubai, speaking to Bloomberg.

"The latest concern is the widening US trade and budget deficits which threaten that the massive government spending and Federal Reserve cash infusions will lead to inflation."

Wednesday saw the United States report sharply wider deficits in both its trade and fiscal accounts. Treasury debt has now swelled by almost $1 trillion in fiscal-year 2009 to date.

Early this morning US bond yields rose further as prices fell, pushing 10-year yields up to 3.95%, a fresh 8-month high.

The daily change in 10-year US bond yields is now four times as volatile as over the last 45-years on average.

Yesterday's spike in the Gold Price to $965 an ounce came on "News of Russia's intention to decrease the share of US Treasuries in its foreign reserves," reckons by Walter de Wet at Standard Bank today.

Thirty per cent of Moscow's $400 billion sovereign wealth fund is currently held in US Treasury debt, and "We plan to reduce [that] portion since the window of opportunity has arisen to work with other instruments," said deputy-chairman of the central bank, Alexei Ulyukayev on Wednesday.

"What we really want is that other currencies are also behind international transactions," said Brazilian finance minister Guido Mantega today in Brasilia.

Ahead of next week's BRIC summit – where political leaders from the fast-emerging economies of Brazil, Russia, India and China will meet – Mantega offered to fund $10 billion of loans to the International Monetary Fund (IMF), calling it part of a "united approach" to helping poorer nations but adding that it's "no move to weaken the US Dollar."

China plans to lend $50bn to the IMF, he said, and Russia will lend $10bn.

Back in Moscow, and ahead of next month's talks to renew the Strategic Arms Reduction Treaty (START 1) between the United States and Russia, the commander of Russia's Strategic Nuclear Forces said on Wednesday that he wants to retain "not less than 1,500 nuclear warheads" – little different from the 1,700 lower limit already agreed for 2012.

Global energy watchdog the International Energy Agency meantime ascribed the surge in crude oil prices to the "long-awaited emergence of improving fundamentals" in its latest report, published today.

The IEA has revised its 2009 demand forecast higher, trimming the drop from 2008's record levels to 2.9%. But speculative demand for oil-price exposure has also driven the surge, the IEA adds, noting that non-commercial traders in Nymex crude futures have gone from a "net short" position of 11,285 contracts in early May to a "net long" of 40,122 contracts at the start of June.

The 12-month forward price for US crude oil has leapt alongside this shift, jumping from $66.50 per barrel to $75.85.

"The gold market is holding up, with the Dollar playing an important role," says Ronald Leung at Lee Cheong Gold Dealers in Hong Kong, speaking today to Reuters.

"[But] we need more data to see if the economy is really turning around or whether that is just being used as an excuse for trading.

"People are also looking to see where they can invest - stocks or bonds, which are offering good yields."

Currency traders awaiting Thursday's US Retail Sales data pushed the Dollar down to $1.6480 per UK Pound this morning – 4% lower for this week so far.

For Sterling investors now Ready to Buy  Gold, that pushed the wholesale spot price down to a fresh 5-month low beneath £580 an ounce.

The Euro failed to break above $1.40 to the Dollar however, capping gold's drop at €678 an ounce for French, German and Italian buyers.

Today the European Central Bank (ECB) lent €3 billion to Sweden's Riksbank in a "stabilization" bid to ease tensions over bad loans and a possible government default by the neighboring Baltic state of Latvia.

Across on America's Pacific coast, "Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government," said California's controller John Chiang in a statement on Wednesday.

Tax revenues in the sunshine state – which creates one-eighth of the United States' entire economy – fell nearly 18% in May from the same time last year. The budget deficit for this tax year is projected to be at least $24 billion.

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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