Gold News

Gold Prices Rally on Sept. "Bank Crash" Anniversaries, Silver Hits Best Level Since Bear Stearns' Collapse

Gold Prices rose as the Euro fell from near 5-week highs to the Dollar and world stock markets also slipped early Tuesday.

Rising to a four-session high of $1257 an ounce for US investors, the Gold Price in Euros jumped 1.5% from yesterday's low to touch €31,480 per kilo.

G7 government bonds rose, depressing the yield offered to new buyers, while commodity prices ticked back.

"Traders were pre-occupied with [platinum-group metals] in the morning," said one Hong Kong dealer of Tuesday's Asian trade.

"Gold and silver were left on the sidelines" until London opened, when platinum and palladium – used primarily in auto-catalysts, and so dependent on new vehicle demand – rose 1.4% to reach new six-week highs.

Silver Prices also rose once again, recording a London Fix of $20.31 an ounce, the highest level since 18 March 2008 – when Bear Stearns was rescued by a US Treasury-backed takeover by J.P.Morgan.

"If the Gold Price does continue to move upwards as many are still predicting, then silver could be dragged up to even higher levels," writes Lawrence Williams at MineWeb today.

"Many analysts make the point that the historic Gold/Silver Ratio has been nearer 15 than the current 62.5 (gold at $1250, silver at $20)," he adds.

"But then the role of silver has changed dramatically since those days, from being a true monetary metal to one which is driven more by industrial demand with precious metals overtones."

"All four precious metals are really keeping a very close eye on the US Dollar right now, and if the Dollar doesn't shape up, as such, this safe-haven buying will continue," reckons Afshin Nabavi, head trader at Swiss refinery MKS's finance division.

Gold Prices, however, continued to show a positive – not negative – correlation with the Dollar on Tuesday, extending the longest period of moving in sync with the US currency since Dec. 1995.

So far in 2010, gold and the Dollar have moved together vs. the Euro on 103 out of 176 trading days. Previously showing a strong, negative correlation with the Dollar of minus 0.50 on a daily basis (rolling one-month), gold and the Dollar have now displayed a positive correlation of +0.1 on average since New Year's Day, peaking above +0.91 as the Greek debt crisis struck in May.

New data today showed Industrial Production across the 16-nation Eurozone contracting unexpectedly in August, while Economic Sentiment on Germany's ZEW measure also fell.

UK house prices rose much less quickly than analysts forecast on the government's official measure. Consumer Price inflation also defied predictions by holding at 3.1% per year.

CPI inflation has now matched or exceeded the Bank of England's upper tolerance of 3.0% per year in 19 of the last 36 months. The Bank has nevertheless slashed interest rates to 300-year lows at 0.50%.

Governor Mervyn King is only obliged to write an open letter to the government, defending the Bank's policy, when inflation rises above 3.0%, rather than remaining above that level.

King has now written eight such letters – all of them since April 2007.

Over in the Gold Futures market, rapid growth in speculative demand "drastically slowed" last week, notes the latest Precious Metals Weekly for ABN Amro from the VM Group consultancy.

"ETF investment [also] fired a possible warning shot over the sustainability of the gold price rally, by falling for the first time on a weekly basis since July and, notably, across all regions."

On the third anniversary of the banking run on Northern Rock – the UK's first High Street banking run in over a century – British investors looking to buy gold today saw the price reach a four-session high above £816 an ounce, some 129% higher from 14 Sept. 2007.

Two years after the collapse of US investment bank Lehman Bros., the New York Federal Reserve said yesterday it will recycle some $27 billion of its maturing mortgage-bond portfolio into Treasury bonds over the next four weeks.

Targeting both fixed-income and inflation-protected bonds (TIPS), the NY Fed has already bought some $18bn of US Treasury debt since mid-August.

By this morning's London Gold Fix, gold priced in Dollars stood 61% higher from 15 Sept. 2008 – the day Lehmans filed for bankruptcy.


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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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