Gold Jumps to $1021, Gains in All Currencies as Bonds, Stocks & Commodities Rise Together on Central-Bank Liquidity
Gold leapt to a fresh 18-month high versus the Dollar in Asian trade on Wednesday, adding 7.2% from the start of Sept. as world stock markets reached 12-month highs and commodity prices rose together with government bonds.
Pushing up to $1,021 an ounce in London trade, gold also touched its best level for UK investors since late April at £616 an ounce.
Eurozone investors now Ready to Buy Gold saw the price add 1.6% from Tuesday's low, but it held shy of last week's 5-month high near €700 an ounce as the single currency jumped on the forex market, breaking a fresh 2009-high vs. the Dollar.
"Although the declining Dollar has been one of the catalysts for gold's rise, it is also important to note that gold bull markets are usually characterized by the metal making headway in all currencies," writes South African fund manager Prieur du Plessis in his Investment Postcards today.
"This is now happening with bullion rising in terms of most major (and minor) fiat (paper) currencies."
"Gold Prices tend to show a high correlation with increases in liquidity," noted Merrill Lynch analyst Michael Widmer in a report on Monday, "and central banks around the world have pointed out that they are unlikely to remove monetary stimulus any time soon."
On Tuesday, both US chief central banker Ben Bernanke and his UK counterpart Mervyn King said their economies were "technically" out of recession.
Neither the Fed nor Bank of England is expected to raise interest rates from their current near-zero record lows, however. In parliamentary testimony in London, King said yesterday he may cut the interest rate paid by the Bank of England on commercial-bank deposits below zero, forcing them to seek positive returns by lending more freely to households and business. (Read about Sweden's Sub-Zero Rates here...)
"What are the alternatives to targeting much higher inflation in order to raise inflation expectations?" asks Steven Barrow, chief currency strategist at Standard Bank, in a note to clients today.
"One is to devalue [the currency]...the Swiss National Bank’s favored route. But the problem here is that it really needs to devalue against the Euro, which is proving tough."
Today the Euro rose against all other major world currencies on news that Consumer Price Inflation across the 16-nation Eurozone rose 0.3% month-on-month in August and held at 1.3% year-on-year excluding volatile items such as crude oil.
The price of German, US and UK government bonds still rose in early trade, however, pushing the yield offered by 10-year Treasuries down to 3.41%.
Today's US consumer-price inflation data – due out just before the start of New York's markets – was preceded by news of much stronger-than-expected UK wage growth, even as unemployment rose to a new 14-year high of 7.9%.
"The economic upswing in China is well advanced," says a presentation from BHP Billiton, the world's largest mining group, today.
"Developed nation restock has started [but] it will be 2010 before true demand emerges."
New research from CLSA in Shanghai agrees, stating that China's commodity demand "is back on track in a very big way.
"Commodities that give investors the most upside potential...are those with supply constraints," reckons CLSA's head resources analyst, Andrew Driscoll.
"In the next twelve months, having exposure to copper [already up 125% from Dec.] is going to be a good investment."
Beijing stimulated more than $1 trillion of private-bank lending in the first six months of 2009, injecting over $585 billion into the economy and reporting GDP growth of above 7% year-on-year.
"Regardless of your outlook for the economy, gold is a great each-way bet," says Rupert Robinson, head of the $200bn private bank Schroders here in London
"It is an investment that works as well in an inflationary environment as a deflationary one. With bullion, it's 'Heads you win, tails you win'. If deflationary fears resurface, gold bullion will rise as investors run for cover and seek maximum security for their money."
"Slowly but surely, gold is going back to its days where it was being held in a precautionary form by people worrying about currency debasement [and] inflation," said Martin Murenbeeld, head of Canadian consultancy DundeeWealth Economics, at the Denver Gold Forum on Tuesday.
"More and more portfolio managers are starting to think of Gold and commodities as an asset class."
Murenbeeld also agreed with previous presentations at this week's Denver conference that emerging-market central banks are considering large allocations to gold in response to the US Dollar's long decline.
"They don't have a lot of options for shifting their reserves, and gold is being mentioned more frequently as an important asset."
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