Gold News

Gold holds onto Monday's gains ahead of Bernanke's speech on US inflation

Spot Gold Prices held onto Monday's gains early in the London session on Tuesday, hitting $661.15 per ounce at the Morning Fix – the highest AM Fix since June 7th for Dollar investors.

John Reade at UBS in London today advised investors to start to Buy Gold, according to a Bloomberg report, before large speculators build their holdings, perhaps sending prices higher over the coming month.

Any move above gold's 100-day moving average at $664, says Standard Bank in Johannesburg, would allow it "to form a base from which to mount a serious attempt possibly toward $700."

Overnight in Asia, Indian gold dealers reported strong demand for physical gold bullion. "Retailers are picking up gold as there is lots of overseas advice coming in favor of gold," according to one jeweler in Mumbai.

In Tokyo's derivative Gold Market this morning, the April '08 contract added 0.4% to the equivalent of $666.42 per ounce. The Nikkei stock-market index trod water from Monday's 7-year closing high. The Yen was flat against the Euro following yesterday's fresh all-time record low.

"Gold is on the cusp of where it might possibly break up rather than down," reckons Stephen Briggs at Societe Generale. "But it's not going to happen unless the Dollar weakens further, and the Dollar has come a long way already."

By lunchtime in London, the Euro touched $1.3663 – its highest level since April 30th. The Pound Sterling traded at $2.0145, little changed from the overnight action in Asia.

That put the Price of Gold in Pounds Sterling above £328.80 per ounce. The Euro Price of Gold hovered around €485 per ounce, recording its best morning session in Europe for two weeks.

"Gold sentiment has stabilized," according to Jon Bergtheil, an analyst at J.P.Morgan. He picked gold and agricultural commodities to outperform this year in a report last December. Now corn and wheat prices have risen nearly 60% from 12 months ago. According to Andy Lees at UBS in London, world milk prices – as measured by the price of powdered milk – have risen 60% since the start of '07.

In the bond market, 10-year US Treasuries were little changed ahead of the Wall Street open, yielding 1 point above last night's close at 5.13%. Traders are nervous, however, ahead of a speech on inflation to be given by Ben Bernanke, chairman of the US Federal Reserve, later today.

"Bernanke is likely to maintain a line that the Fed remains concerned about inflation," said Charles Diebel, head of European rate strategy at Nomura International in London. "People in the bond market have talked themselves into a very bearish position. There's a risk 10-year yields will retest a five-year high we saw in June."

Brian Taylor, chief currency trader at Manufacturers & Traders Trust in Buffalo, New York, agrees on what Bernanke will say – but not what it means for bonds.

"Bernanke will re-assure the market that the Fed is still vigilant on inflation," the $50-million manager told Bloomberg earlier. "But that's nothing new, and the Dollar may continue to weaken."

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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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