Gold News

Gold Gains as Oil Rises; Dollar to "Plunge" if Asia Keeps Dumping US Treasury Bonds

The Gold Market jumped into the US open on Thursday, recovering an overnight dip and rallying to end the day in London near the week's highs at $765 per ounce after US data showed a sharp increase in employment for the week-ending last Friday.

The PM Fix in London had previously been set at $764.15, nearly $6 above the AM price.

Gold Prices have now gained more than $100 per ounce – some 15% – in the last two months.

"Whatever way you look at it there is near-term resistance to a further upmove from a technical point of view," said Phil Smith in his note today for Reuters India.

Noting the rally/decline pattern seen on Tuesday – and repeated yesterday – "this is not constructive price action," added the technical team at Mitsui in London.

"But it is difficult to see the precious metals breaking down further whilst the Dollar remains weak and oil is firm after the recent rally on Turkish/Iraqi tensions."

Crude oil rose above $87.80 per barrel this morning as Baghdad and Washington pleaded with Turkey not to act on the resolution – agreed by politicians in Ankara yesterday – to send troops across the border into Northern Iraq in pursuit of Kurdish rebels.

Members of OPEC also sent mixed signals to the trading pits, with Nigeria's oil minister saying the cartel may choose to raise output targets at next month's meeting in Saudi Arabia.

An Iranian oil official then rebuked the idea early today, saying there is "no need" to mitigate the current record-high oil prices with increased output.

In Tokyo, gold futures traded for Aug. '08 delivery rose 0.5% to the equivalent of $766 per ounce, while the Nikkei stock index added 0.9%. It remains below the starting level of Jan. 2007.

Over in Mumbai, the Sensex dropped another 3.8% after falling 2.1% yesterday on new government plans to limit foreign investment in Indian assets. European stocks stood 0.5% lower on average as the US open drew near.

Back in the Gold Market, "we're seeing very little support from physical buyers," said Wallace Ng, chief trader at Fortis Bank in Hong Kong, to Bloomberg overnight, "as the price is running up too fast for them to catch up at this moment."

But "there's a little bit more demand out of India than in the last week or so," counters Jack Allen, chief dealer at Natexis in London. "They bought on the dip."

In the Western investment market, the London Bullion Market Association reports that the UK capital – home to the world's busiest physical gold-investment trading – saw turnover rise 18% last month by volume, growing 26% by value.

"The number of transfers rose to a daily average of 1,789," says the LBMA, "setting a new high." (Why do professional gold traders only deal in London bullion – and how you can access the same great prices at low cost? Learn about Good Delivery Gold here...)

On the forex market, the US employment news sent the Dollar reeling, taking the Euro to new record highs above $1.4300. The British Pound spiked to a 9-week high above $2.0500 after rising steadily on new data that showed UK consumer spending growing at a three-year record in Sept.

"This points to [UK interest] rates staying on hold until next year," reckons Vicky Redwood at the Capital Economics consultancy. But buried beneath the headline numbers, "the evidence of aggressive high street discounting seen here paints a somewhat softer picture," says Richard McGuire at RBC Capital Markets.

"It resonates well with yesterday’s survey from the Bank of England’s Agents, which noted a slowdown in the value of consumer spending," he adds.

DSG Plc, owner of PC World and Currys – the major electrical chain – warned this morning that first-half profits for 2007 are now set to fall by £20 million (nearly $41m). The International Monetary Fund warns in its latest economic review that the UK housing market is now 40% over-valued.

Today's jump into Sterling helped cap the Gold Price in British Pounds below £373.50, down 0.8% from Wednesday morning's 17-month record.

For German and French investors looking to Buy Gold Today, the price in Euros rose towards €535 per ounce, down €4 from yesterday's early top.

US Treasury bonds ticked higher as the Dollar slid, pushing the 10-year yield five points lower to 4.50% as traders looked for lower Federal Reserve rates ahead. Alan Greenspan – former chairman of the Federal Reserve – had earlier dismissed the risk posed to the Dollar by Asian central banks quitting their huge position in US government debt.

China's massive Dollar position is "already-known information" said "Easy Al" to a group of Asian investors. Greenspan's view is that "markets are clever enough not to overreact."

But governments holding a share of America's $9 trillion in government debt may disagree. Eisuke Sakakibara, former vice-minister for finance in Japan, told an interviewer today that the US Dollar may "plunge" next year if economic growth in the United States "falls below 1%."

During August, Japan sold $23 billion of US Treasury bonds according to data released this week. China sold another $14.2 billion, and Taiwan quit $5 billion in US obligations.

"These numbers are absolutely stunning," says Marc Ostwald, economist at Insinger de Beaufort here in London. August's total sale of $163 billion in US assets by foreign investors was the first net outflow since 1998.

"Woe betide US Treasuries if inflation does not remain benign," Ostwald warns.

What goes up when Treasury bonds fail to outpace inflation? To Get the Facts About Gold – instead of the hype – register for a gram of Free Gold from BullionVault now and claim your free Myths of the Gold Market report today...

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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