Gold News

Gold surges vs. all currencies as oil rises, Wall Street creates "bail out" fund

Gold Prices surged yet again early Monday, reaching new 27-year highs against the US Dollar and breaking through €530 for European buyers – a new 17-month high.

Gold Priced in British Pounds rose above £370 to come within £10 of the all-time record high set in May 2006. Gold also gained more than 0.5% from Friday's close against the strong commodity currencies of Australia and Canada.

"The lowering of the Fed funds rate...is putting more pressure on prices," said Alan Mandel, president of the eponymous AlanM Trading Co. in New York, to Bloomberg earlier.

"We're at historic highs and I don't see a red light in front of the Gold Price."

By lunchtime in London, the price of physical gold for immediate delivery had gained more than 0.9% from Friday's closing level. The most-active Comex gold futures contract, due for delivery in Dec. '07, broke $760 – the highest level for the "front-month" contract since Jan. 1980.

Racing higher against the Japanese Yen, spot gold also gained 1.1% for Tokyo investors overnight. Gold Prices for Japanese buyers has now risen by more than one-fifth since the current rally began nine weeks ago.

Morgan Stanley raised its average Spot Gold forecast for 2008 to $800 per ounce, citing strong Asian demand and the weak US Dollar. "The potential for a weaker US Dollar, concerns about the credit crunch and the impressive rally so far have brought investors back to gold in ways not seen for years," agree analysts at UBS.

"In the case of safe haven buying," the Gold Market hasn't seen this level of interest in "decades," they add.

"We expect further waves of investment and speculation over the next 12 to 18 months."

Copper prices rose in Shanghai trade today, and lead prices hit a new record high in London. US crude oil futures also hit a new peak above $85 per barrel. Citigroup raised its forecast for average oil prices in 2008 by $10 per barrel.

European stock markets meantime crept higher, with the FTSE100 in London reaching a 7-year high, led by mining and energy shares.

The Nikkei in Tokyo had earlier finished the day just 0.1% better, while Japanese gold futures traded for delivery in Aug. '08 gained 1.4%, taking the most-active contract to new 22-year highs. Near-dated platinum futures went "limit up", hitting the maximum daily gains allowed.

In Shanghai, the major index of mainland Chinese stocks broke through the 6,000 level for the first time ever, while the Communist Party began its 17th Congress in Beijing.

The Shanghai Composite has now risen six-fold in the last two years.

On the currency markets, the Euro recovered Thursday's two-week high above $1.4238, capping the Gold Price in Euros at €533 per ounce for a gain of 2.3% from last week's start.

The Japanese Yen fell to a three-week low, worth ¥117.72 per Dollar, while the British Pound jumped to a two-session high of $2.0430 before slipping back as government data showed house-price inflation falling to 11.4% annualized in August, down from 12.4% in July.

While that rate of increase may sound more-than-bullish for UK real estate, the average time on market of a house-for-sale has risen to 85 days over the last month – a five-year record – according RightMove, a private consultancy. The number of unsold properties on estate agents' books rose to the highest level since 2004.

Spooked by the slump in US mortgage-backed securities (MBS) meantime, three of Wall Street's biggest banks are expected to announce today a new "bail out" fund that will buy high-risk MBS in the hope of avoiding a meltdown in the sector.

Estimated by the press – all quoting "sources close to the deal" – at between $75-100 billion, the fund will be known as the Master-Liquidity Enhancement Conduit, or "M-Lec" for short. Guaranteed by Citigroup, J.P.Morgan and Bank of America, it will issue its own short-term debt to buy subprime mortgage assets and deflect any "firesale" impact on open market prices.

"Banks made unwise business decisions, and now they're scrambling to save themselves," says Steve Persky at Dalton Investments, an L.A. fund manager running $1.2 billion for its investors.

Citigroup, a member of the M-Lec group and the world's second-largest bank by stock-market value, is expected to report a 60% drop in its earnings after warning of "trading and loan losses" last Thursday.

Today in Tokyo, Nomura Holdings – Japan's largest investment securities firm – said it has lost ¥73 billion ($620m) on US mortgage loans. It's cutting 400 jobs in the United States, and now expects to report its first quarterly loss since 2003.

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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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