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Gold touches new 16-month high vs. USD and GBP; London press fails to notice

Spot Gold Prices touched a fresh 16-month high in London early on Wednesday, but slipped $3 per ounce to trade at $711.29 as the US open drew near.

The AM Fix came in at $711.75 per ounce, the highest London Fix since 17th May 2006.

"Precious metals, especially gold, remain a favorite for investors," says today's note from Standard Bank in Johannesburg. "Appetite for the complex is supported by positive sentiment in global equity markets, as well as by significant lingering risk in the underlying financial system."

Breaking above $714 just ahead of the London open, the Gold Market also pushed higher for futures traders at the Japanese Tocom after Prime Minister Shinzo Abe announced his resignation in Tokyo.

Achieving less than a 30% approval rating in a poll earlier this week, Japan's youngest ever prime minister had vowed to step down if the Japanese parliament failed to support logistical aid for the US-led coalition forces in Afghanistan.

Now Japan "should seek a continued mission to fight terrorism under a new prime minister," Abe told a press conference today.

"Gold Buying on the Tocom was triggered by a fall in the Yen," claimed one Japanese trader to Reuters. But in truth, the Yen barely moved on the news of Abe's resignation, slipping less than 0.4% against the Dollar and holding firm against the high-yielding "carry trade" currencies of New Zealand, Australia and Britain.

The Nikkei stock index, in contrast, dropped 0.5% for the day, taking its losses for the last five sessions above 2.1%. The FTSE in London lost 0.6% by lunchtime, while the broad European markets dropped one-third of a per cent.

On the currency markets, the Euro also failed to gain versus the Yen today, despite rising nearly 1% versus the Japanese currency on Tuesday. But the European single currency did reach a fresh life-time high against the US Dollar overnight, finally breaking the peak of $1.3850 set in late July and reaching $1.3889 by 07:45 EST.

"The expected half percent cut in [Dollar] rates means spreads between the US and Euroland are narrowing, removing whatever is left for any positive carry for the Dollar," notes Niels From, a currency strategist in Frankfurt for Dresdner Kleinwort.

"The Fed should cut rates by a half-percentage point as the economy's outlook has worsened," agrees Masashi Kurabe, a currency manager at Bank of Tokyo-Mitsubishi. "European rates may go up as soon as the markets stabilize. A narrowing interest-rate differential is positive for the Euro."

Since its record low of late 2000, the Euro has now risen by 63% versus the greenback. Gold is commonly said by analysts and pundits to merely track the Euro-Dollar exchange rate. But the Spot Gold Price has gained more than 160% in Dollar terms over the same period.

Gold Prices also reached a 16-month high versus the British Pound early on Wednesday, briefly trading above £351 per ounce before slipping to bounce off £349.

The last time gold bullion held this much value for British investors, it had just broken all-time record highs in Sterling above £380 per ounce. But whereas the spike of May 2006 came and went within five days, the current rally in world gold prices remains far more measured – and it's making far fewer headlines as a result.

The same week as Spot Gold Prices spiked to a 26-year high vs. the Dollar in spring of last year, the London press was packed with bullish comment. The move in gold was reported in the Daily Mail and on national BBC radio. John Plender in the Financial Times said gold was "in a long run bull market."

The Guardian's Larry Elliot agreed, as did Anthony Hilton in London's Evening Standard. Allister Heath in The Spectator wrote that "the price of gold will continue to rise." The price duly began falling.

Today, however, the Times of London carries not one word about Tuesday's $10 surge in Dollar gold prices...nor the 1.2% rise against both Sterling and Euros...nor the 1.7% rise in gold against Japanese Yen.

Nor is gold's 5% gain against Sterling during the last month featured in more than a commodities column in the Financial Times, nor even in the equities-bearish Telegraph.

Given the Gold Market's strong contrarian fan-base, this lack of press coverage may prove decidedly bullish for the rally starting on Tuesday last week.

If you'd like to Buy Gold Today while the mass of investors is still looking elsewhere, visit BullionVault for direct access to live spot-market prices, plus the lowest fees enjoyed by private gold investors anywhere in the world.

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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