Gold News

Gold rises as Fed gives up inflation fighting; also hits 17-month high vs. Euro

Gold Prices continued to tick higher during the Asian and early European sessions on Wednesday, gaining more than $3 per ounce from last night's US close to reach $741 by mid-morning in London.

European stock markets failed to rise, however, despite Tuesday's new record highs in US equities, sparked by news that the US Federal Reserve has entirely given up its "inflation fighting" bias.

The MSCI Asia-Pacific index hit new record highs in turn, as the BSE in Mumbai gained 4.3% for the session. The Hang Seng index in Hong Kong has now risen by more than 40% since Aug. 20th – a "rocket-like uplift [that] stretches credulity" according to John Authers in today's Financial Times.

"The Fed minutes from September 18 showed that all members of the rate set committee supported the 50-basis-point rate cut," noted Brandon Lloyd for Mitsui in Sydney earlier today, and "this prompted another quick reversal in Gold Market sentiment – increasing expectations that further US rate cuts will occur sooner rather then later to fight off the current credit concerns & slow down in US housing."

"The Fed minutes might just be enough to break the Gold Price out of its current consolidation pattern," believes Lloyd, "and position it to test its next $786 target."

The Fed minutes also sparked a fresh slide in the US Dollar on the currency markets, taking the Euro up to $1.4140 by late morning in Frankfurt. New data said that growth in France's industrial production didn't slow as much as analysts had forecast.

Those sharp gains in the European single currency capped the gains in gold for European investors below €524.50. The Gold Price in Euros had earlier made a brief spike, however, to new 17-month highs above €526 per ounce.

The British Pound also bounced on the Fed's policy minutes, and following a speech last night by Mervyn King – head of the Bank of England – it stood nearly two cents higher from Tuesday's start at $2.0460 by mid-morning today in London.

Dr.King restated his commitment to fighting inflation rather than bailing out struggling banks, fueling expectations that UK interest rates will continue to beat returns on the US Dollar.

"Almost every actor in this drama saw advantage in cheap money and plenty of it," he said of last month's panic at Northern Rock, clearly distancing himself from the UK government's response to guarantee the over-geared mortgage bank unconditionally.

"[But] just as Bank Rate was not set to insulate the manufacturing sector from the trade deficit...it will not be set now to insulate the banking system from the repricing of risk."

By the AM Fix in London today, the rallying Pound capped the rising Gold Price in Sterling below £364 per ounce.

In the broader commodity markets, crude oil futures continued to tick higher, rising above $80 per barrel after Wednesday's US forecast of a colder winter ahead. Copper prices rose in Shanghai trade today even as Southern Copper, the world's fifth-largest producer, signed an agreement with union leaders in Peru and ended a series of strikes at its Toquepala and Cuajone mines.

Soybean futures also jumped after hitting a 3-week low yesterday.

Back in the Gold Market, Toyko's most-active gold futures contract, currently due for delivery in Aug. '08, reached a new 22-year high after gaining more than 1.5% for the day. Platinum futures traded at the Tocom also rose, nearing a three-month high despite last week's news that Mazda, the Japanese auto giant, has developed a catalyst that cuts platinum and palladium use by up to 90%.

The leading "minicar" producer in Japan, Daihatsu announced in mid-Sept. a new fuel-cell technology that eliminates the need for platinum altogether.

Current automobile fuel cells each require around 100 grams of platinum.

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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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