Gold News

Gold regains Aug. highs; bonds get "shellacked" as Bush moves to rescue US housing market

Spot Gold Prices rose steadily throughout the Asian and early London sessions on Friday, before leaping at the US open to regain their highs of the month above $674 per ounce.

World stock markets also rallied strongly – and US Treasury bonds fell – on news that President Bush will today announce a rescue package for the subprime US housing market.

"The president wants to see as many homeowners who can stay in their homes with a little help be able to stay in their homes," a senior official told the Wall Street Journal.

"We're not looking for an industry bailout or a Wall Street bailout. The focus here is on the homeowner." (What might the turmoil in world credit markets mean for gold? Click here to read on...)

Today also brings a speech from Ben Bernanke, chairman of the US Federal Reserve, entitled 'Housing and Monetary Policy'. He's due to begin speaking at the Jackson Hole central banking summit at 13:00 GMT. The expected action and reassurances now due pushed US Treasury bonds – the "safe haven" of choice for large institutions during the turmoil of August – lower in price.

Indeed, "Treasuries should get shellacked now that Bush has proposed the nationalization of the subprime market," as Dan Denning of The Daily Reckoning Australia put it in a private note to BullionVault this morning.

Ten-year US yields rose 5 points to 4.56% overnight. Two-year US bond yields rose 10 points 4.20%. Overnight Dollar deposit rates in Tokyo jumped 45 points to 5.65%, while Gold Lease rates in London hit their highest level since Nov. 2003.

As money came out of US bonds, the Nikkei stock index in Tokyo closed 2.6% higher for the day, while Hong Kong reached a new lifetime high. Dow Jones index futures traded in Frankfurt rose to signal a 0.4% opening gain. Here in London, the FTSE100 put on 0.45% during the first hour of trade, even as Barclays – the UK's third largest bank – admitted it had to tap the Bank of England for an emergency $3.2 billion loan on Wednesday. It had already tapped the BoE for a $630 million loan last week.

In the Gold Market, Japanese gold futures traded at the Tocom for Aug. '08 delivery gained 1.1% to equal $673.90 per ounce, while the Yen continued to slip back on the currency markets. The Dollar rose to regain Monday's opening level of ¥116.30, but it slipped fast against the Euro to $1.3700. Sterling ran above $2.02 for the first time in more than two weeks.

That action helped the Sterling Price of Gold touch £334 per ounce, its best level since Aug. 16th. For French and German investors wanting to Buy Gold Today, the price reached €492, nearly €6 above last night's low.

"Risk minimization is the flavor of the month & will continue to be served until some certainty on the subprime fallout becomes apparent," says Brandon Lloyd in today's technical gold-market note from Mitsui. "Close attention will be on today's US inflation figures [reading 1.9% on the personal consumption deflator] as dealers look for further signals on what impact the subprime woes are having on the US economy."

The economy of India, meantime – where one in every five ounces of Physical Gold sold worldwide was bought in 2006 – continues to accelerate, according to data released this morning. GDP grew 9.3% in the second quarter of this year, outpacing the Jan. to Mar. period's 9.1% rate of growth.

"Asian growth and exchange-traded gold demand should prove a more lasting feature of the gold market," said Morgan Stanley in a report yesterday. "Much of the support from traditional demand-side fundamentals will persist, with new fundamentals pushing Gold Prices higher."

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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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