Gold News

Gold Hits Fresh Records as Bank of England's Pension Pot Goes "All In" on Inflation-Linked Bonds

The price of Gold hit a new record London Fix of $1170.25 an ounce early Tuesday, as Asian stock markets closed the day lower and the US Dollar slipped on the forex market.

Crude oil slipped. Government bonds ticked higher.

One London gold dealer noted a "sense of disappointment" that gold failed to reach $1200 an ounce last night as the December option contract expired.

"Such is the nature of the market these days..."

British investors now Ready to Buy  Gold saw the price hit a fresh all-time record for the third day running on Tuesday, touching £708.81 at the AM Gold Fix here in London.

Against the Euro, gold also recorded a new record Fix – used as a clearing and benchmark reference price by large dealers and owners – at €782.93 an ounce.

"Any retracement that found support near last week's highs in the 1151-1152 range would keep the bulls on the charge," says Scotia Mocatta's latest technical note.

"In the wake of the [recent] announcements from central banks – India, Russia, and Mauritius – the market is catching onto a strong buy signal as investors hold a vote of no-confidence in the US Dollar," says a note from MKS Finance in Geneva.

"With very little scrap coming in, it seems most investors have positioned themselves long."

Russia's central bank said today that it grew its gold reserves by 2.6% to 606.5 tonnes last month, maintaining its position as the world's ninth largest holder.

"There is a clear correlation between Dollar weakness and a rise in speculative length" in the broad commodities markets, notes Walter de Wet at Standard Bank, "especially since 2007.

Latest data from the US Comex Gold Futures and options market show the outstanding number of contracts surging to new all-time records last week. The "net long" position held by speculative players as a group remained below the peak levels of mid-October.

"Commodities will remain partly a Dollar play," says de Wet, but "More speculative activity means greater volatility.

"We would buy on large dips."

Speaking in Madrid on Monday, "I consider extremely important that the US authorities" support a Strong Dollar policy," said European Central Bank president Jean-Claude Trichet.

The European single currency has risen 30% against the Dollar since Trichet became ECB president in mid-2003, but also gained 28% against the British Pound.

The Euro has slipped 5% against the Chinese Yuan over that period.

Trichet also noted yesterday that Europe's own record-low interest rate of 1.0% has "benefited" the large share of Spanish mortgage debtors on adjustable-rate deals.

Here in London, "Bank Rate is almost at zero, and the [Monetary Policy Committee] has extended its program of asset purchases – now to £200 billion," said Bank of England governor Mervyn King to a parliamentary meeting on Tuesday morning, warning of the "significant margin of spare capacity in the economy...

"It is to counteract those forces that the [Bank of England] has taken unprecedented monetary policy actions over the past year...[to] help restore the level of spending...and ensure inflation is on track."

Currently paying benefits to almost 7,500 former staff while planning retirement provision for current Bank members, the Bank of England's own pension fund switched virtually all its money into inflation-linked government bonds between Feb. 2008 and Feb. 2009 according to the latest Update, published under Freedom of Information rules.

Rising from 70.7% to more than 88% of the fund's total allocation, inflation-linked bonds returned a net loss of 6% over the period. Of the fund's other assets, more than nine-tenths were in conventional UK government bonds, which returned 3.1% between Feb. 2008 and '09.

Inflation over the period ran at 3.5% on the Retail Price measure (ex-mortgages and indirect taxes).

The Bank of England's pension fund effectively quit the stock market in the year-to-Feb. 2008.

Meanntime in New York, and confirming what David Morgan of Silver-Investor said his subscribers were reporting in September, HSBC Bank is ejecting private-investor gold from its vaults says today's Wall Street Journal.

Freeing up space for institutional funds, HSBC Bank began telling smaller clients this July that their metal "will be returned to the address of record...at your expense" unless instructed otherwise.

HSBC Bank apparently recommends ejected clients use Brinks, the publicly-traded US-based secure storage provider. Brinks did not reply to WSJ enquiries about the matter.

"I can jump up and down and scream all day long about how much I don't like it. But it's their business decision," the paper quotes David Norris, executive vice-president of Texas-based GoldStar Trust Co., which says it's been using HSBC Bank's facilities for 15 years on behalf of retirement-account clients.

"I have never seen any relocation like this," says a managing director of the Delaware Depository Service Co.

"Many facilities are overloaded," says a manager at vaults in Nampa, Idaho, also reporting 500% growth in metal storage since August thanks to the HSBC decision.

Meantime on the supply side, John Holliday, head of Newcrest Mining's global projects team, told delegates at the last day of the New Generation Gold Conference in Perth that Australia – possibly the Gold Mining world's most heavily explored continent – faces the same falling ore grades and lower output afflicting other heavily-developed regions.

"More investment in greenfields [mine] exploration and new technologies may help delay the trend, but only by possibly bringing forward the discovery of the fewer, very hidden deposits remaining," said Holliday of Australia's gold output.

The London Times today picks up last week's report in the South African Journal of Science that local gold-mining reserves may be 90% lower than thought.

Formerly No.1, "Within three years, South Africa could fall to fifth place" in the world table of producing nations the paper quotes GFMS analyst Will Tankard.

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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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