Gold News

Gold Hits 8-Week High as Stocks Tumble, Tokyo Threatens Yen Intervention, Global Gold Demand Hits Q2 Record

Gold Prices rose to a new 8-week high Wednesday morning in London, rising 2.2% from yesterday's sharp drop as world stock markets continued to slide in thin trade.

"Tuesday was a wild day in the precious complex ," says a note from Mitsui's London team, "and perhaps a sign of things to come as the summer months draw to a close.

"Downside risks to the economy continue to emerge."

Tuesday's worse-than-expected US home sales figures were today followed by Japan's corporate-service costs falling for the 22nd month, down by 1.2% year-on-year in July.

Crude oil edged lower while base metals fell to a 1-month low in London dealing.

Five-year US bonds also slipped in price, even as German and UK debt rose, nudging yields upwards from a 20-month low ahead of today's $36bn auction of new debt.

The gap between Irish and German bond yields reached a record high of 3.29% as Dublin's debt fell – and Berlin's rose yet again – following Tuesday's downgrade of Ireland's credit to "AA-" by the S&P ratings agency.

Despite Germany's Ifo index of business sentiment rising ahead of analyst forecasts, the Euro today fell back towards 6-week lows near $1.26, pushing the Gold Price in Euros up to its strongest level since 1st July at €31,500 per kilo.

"Germany came in as the world's largest purchaser of retail Gold Investment products during the second quarter," writes Rhona O'Connell of GFMS Analytics at MineWeb today, commenting on the latest Gold Demand Trends report from research and marketing group the World Gold Council.

This spring's Greek deficit crisis saw Germany "registering Europe's largest year-on-year increase [in Gold Investment demand] of 59% and Switzerland up by 19%," says O'Connell.

"France experienced fresh purchases, but also profit taking...[but] the premium on certain bullion coins in France was reportedly pushed up towards 15% during the quarter."

Overall, and after falling by one quarter year-on-year in the first quarter of 2010, global gold demand – as identified by research from GFMS Ltd – rose to a series record for April-June, swelling by 36% from the same period last year to more than 1,050 tonnes.

The Q2 record came despite a 30% year-on-year rise in the Gold Price.

Electronics demand rose sharply, says the WGC, as did Chinese household demand. Private investment demand from Western Europe represented 35% of global Gold Coin and small bar purchases, down from 2009's average of 40%, but sharply higher from the 7% level of early 2008.

"Many of these buyers undoubtedly turned to gold as a 'flight to quality'," says the WGC's, "prompted by the credit crunch and its aftermath.

"[But] their return to gold has proved resilient."

Massively underperforming the Euro Gold Price across the last 10 years, European shares today matched New York's 1.8% loss for the week so far by lunchtime in London.

Tokyo's Nikkei share index closed Wednesday nearly 1.7% down at a new 15-month low, despite the Yen retreating on the forex market after finance minister Yoshihiko Noda said he will "respond appropriately as needed" to weaken the currency.

Analysts believe that every ¥1 fall in the US Dollar cuts 0.9% off Japanese exports profits.

Tokyo bought some $800bn in the five years to 2005 in an attempt to weaken the Yen on the forex market.

The currency's Dollar exchange-rate was little changed, however, since rising a further 25% to yesterday's 15-year high.

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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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