Gold News

Gold opens London at 16-month high on "safe haven" bid

Spot Gold Prices pulled back from yesterday's 16-month Dollar highs early Friday, opening London $4 off, just shy of $694 per ounce.

"Gold is now overbought technically," reckons Phil Smith for Reuters India, "[after] breaking through some important technical resistance levels.

"But frankly," he adds, "support and resistance levels do not seem to have counted for much during the recent price action."

"The trend for Gold Prices is clearly very strong," agrees Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo, "but I'm worried about the speed. We could see some more profit-taking before testing $700."

"The subprime problems have shaken stock, currency and credit markets...it seems investors are treating gold as a last resort of investment. We are also seeing strong inflows into exchange-traded gold funds."

The gold held in trust by the StreetTracks GLD fund has now grown to a record 542.35 tonnes, a gain of 5% from this time last week. (If you'd rather Buy Gold to own it outright – stored securely in either New York, London or Zurich – visit BullionVault now to enjoy both low fees and full legal title to gold...)

Putting in its highest start since mid-May 2006 today, the Spot Gold Market has now risen in all but five of the last 14 sessions, gaining 6.7% from the low hit as world equity markets sank in August.

But as investors have begun to Buy Gold so heavily, the S&P index on Wall Street, meantime, has risen less than 5.5% since then. Ten-year US Treasury bond prices have advanced by 1.8%.

"There's been a lot of talk about gold revamping its safe-haven status," said David Meger, metals analyst at Alaron Trading, to the Chicago Tribune overnight. "With the concerns about the economy and the volatility that we've seen in equity markets...funds [are] drawing themselves toward gold as a safe haven."

As Spot Gold Prices leapt 2% on Thursday, crude oil prices also shot higher.

The US benchmark hit $77.43 per barrel, less than $1.50 off its all-time high of last month – and Brent crude traded in London rose above $75 – as political tensions in the oil complex rose.

The US embassy in Nigeria – the world's fourth-largest oil producer – warned of possible terrorist attacks in the West African nation. In the Middle East, Syrian air defenses fired on Israeli jets apparently violating Syrian airspace. Technically, the two countries remain in a state of war after peace talks broke down in 2000.

And in Northern Europe, Norway and the UK saw their airspace violated by eight Russian bombers flying on a long-range patrol. The RAF scrambled Tornado jets to intercept the Tupolev Bears, the third such "Cold War" incident for the British airforce in 2007 so far.

September's sharp growth in the "safe haven" bid for Buying Gold comes just as foreign holders of American debt have begun selling their US Treasury bonds.

The Daily Telegraph in London says the bond selling – worth more than $48 billion over the five weeks ending Aug. 31st – "raises concerns China is quietly withdrawing its funds from the United States, leaving the Dollar increasingly vulnerable."

What's more, the new upsurge in the Spot Gold Market also coincides with the start of India's busiest wedding and festival season, too. Experts from the World Gold Council forecast that Indian gold sales this autumn could top the record sales of 2006 by up to one half. The impact of Indian "offtake" from the world market in physical gold is set to run until the New Year.

"Seasonally, this is when gold comes alive," as David Meger tells the Chicago Tribune.

"From Asian farmers converting their harvest into a gold stash to Italian jewelers returning from vacations, the physical demand for gold, as opposed to gold futures and other gold-linked paper investments, tends to pick up starting in late summer."

Gold sales in the Middle East's richest cities are rocketing too, and they've already risen by one quarter in Turkey – the world's fourth hungriest gold market – from the same period last year. In China, private Gold Buying jumped by one-third between April and June from the second quarter of '06.

Gold mining production, on the other hand, just cannot keep pace. South Africa, the world's largest producer, saw its gold output slide 7.5% between April and June according to the Chamber of Mines. Annual production has halved in the last decade, and despite large and growing investment in new exploration worldwide, geologists worry that the next big "elephant" find just isn't there to be found.

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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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