Gold News

Gold Rallies Near Record High as Bangladesh Buys IMF Gold, Eurozone Fears Spur Demand

Gold Prices rallied on Friday after falling 1.5% from Wednesday's near-record levels, unchanged for the week at $1248 per ounce as the Bangladesh central bank said it's bought 10 tonnes of bullion from the International Monetary Fund.

Some 222 of the 403 tonnes the IMF has been looking to sell since Sept. '09 have now gone to central banks, according to Bloomberg, led by India's 200-tonne purchase last Oct.

Tuesday's sale to Bangladesh was done "on the basis of market prices" the IMF says.

"Whenever these things come out, they tend to be relatively supportive of the Gold Price," says Darren Heathcote at Investec Bank in Sydney, Australia.

"It will add more support to what is already a well-supported market."

"The bulk of emerging economies are overweight US Dollars and underweight Gold Bullion," says the latest analysis from ANZ Commodity Research.

"China is a good example, which could consume the global annual supply of Gold Mining production and still only hold 5% in gold to total foreign reserves."

Friday's Asian Gold Trading was "typically quiet" according to one Hong Kong dealer, but "speculative selling" by Chinese traders was matched by buy-orders on the electronic Globex platform.

"Physical Gold was also well bid."

Driving gold's recovery from July's dip, "There has been a reversion to the strong relationship between European [credit default swap] rates, the weakness of the Euro and the price of gold," say analysts at French bank Natixis in their Commodities Weekly.

Last month, CDS rates on the "PIIGS" government debt (Portugal, Italy, Ireland, Greece and Spain) jumped by 50%, the bank notes. "The price of gold denominated in Euros jumped 8% from €900/oz to €980/oz."

The Gold Price in Euros today edged back to that level, down 1.5% from Wednesday's 10-week high.

Eurozone stock markets fell as reports spread that Germany's giant Deutsche Bank is a about to ask shareholders for €9 billion ($11.4bn) to meet the new "Basel III" capital requirements.

Analysis from Merrill Lynch says a further 14 Eurozone banks may lack the necessary Tier 1 capital to meet the new rules.

National Bank of Greece already made a "cash call" on its stockholders this week, asking for €2.8bn.

"As markets gradually stabilize, our non-standard measures...will continue to be progressively phased out," claimed European Central Bank president Jean-Claude Trichet on Friday, speaking to the Financial Times.

"But it is a process which takes time."

Over in Tokyo, new minutes from the latest Bank of Japan meeting showed, policymakers are increasingly worried that "the appreciation of the Yen might depress growth in exports and corporate profits."

The Yen rose half-a-cent to the Dollar this morning, but held shy of Wednesday's new 15-year high.

US Treasury bonds meantime rallied from Thursday's drop following the weak demand for a new auction of 30-year debt.

Crude oil rose once again, hitting $75.91 per barrel on the WTI contract.

"The price of gold should be reflective of where we are in terms of what's happened, what's happening in the global economy, and the expected ongoing demand for gold," says Patrick Connolly of AWD Chase de Vere, interviewed on MineWeb's latest podcast.

"But markets and be they equity markets, or be they markets in commodities, do not act rationally – they tend to overshoot at the top end, and actually get over pessimistic at the bottom end.

"Gold is a rally – it's a sustained bull rally. [But] nobody knows if that stops today, tomorrow in a month, in a year, in five years or 10 years time."

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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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