Gold News

Gold & Dollar Jump Together as "Market Dynamic Shifts", Risk Aversion Whacks Stocks & the Euro

The Gold Price jumped 2.2% at the start of London trade Friday, driven higher by strong institutional buying even as the US Dollar also rose.

New US data showed the world's largest single economy contracting by 3.8% on an annualized basis at the end of 2008 – better than the 5.4% contraction forecast by private-sector economists, but still a sharp acceleration from the summer's 0.5% rate and the worst pace since 1982.

"The market dynamic has shifted," says London currency trader Tom Tragett in an emailed note to us here at BullionVault today.

"Weak US data is heightening Risk Aversion, and that means selling EUR/USD, Aussie and Kiwi Dollars and the Dow while buying the Pound, Yen and Gold.

"The Euro in particular is reacting very negatively. Lower EUR/USD means traders must pile back into hoarding the yellow stuff."

Today the European single currency fell to one-week lows against the Dollar, Sterling and Japanese Yen, driving the Gold Price in Euros more than 8% higher from Thursday's low to €719 an ounce – a new all-time high.

Last month's Eurozone inflation data came in at a near-10 year low. (Isn't gold an inflation hedge? Dispel the 5 Myths of the Gold  Market here...)

Looking further ahead for Gold in 2009 – and as currency traders turn from selling the Pound Sterling to selling the Euro – "The value of the US currency [also] has to go down," reckons Peter Munk, chairman of world No.1 Gold Miner Barrick Mining – speaking to Reuters at the World Economic Forum in Davos, Switzerland yesterday.

"With the rescue packages calling for trillions, not in my opinion is more likely to go up than down."

Crude oil meantime flagged near $41 per barrel early Friday, while government bond prices rose across the board. Ten-year US Treasury yields were pushed down to 2.82%.

World stock markets slipped once again, meantime, losing value for the 14th time out of 21 sessions in January and dragging Frankfurt's Dax index of German shares 11% lower from New Year.

Gold Bullion neared month-end 4.5% higher for Dollar investors and hit new all-time highs against the Euro – up more than 14% from the end of December.

Measured in terms of the old German Deutsche Mark, the AM Gold Fix in London broke DM 45,000 per kilo for only the third time in history.

Wholesale professional dealers in London – heart of the world's Gold Bullion market – reported strong buying by institutional funds.

The SPDR exchange-traded gold fund, listed in New York but holding gold in London bank vaults, had already swelled by 8% for the month of January, as investment fund managers – barred from owning physical assets outright – took a position in the Gold ETFs.

Adrian Ash

Adrian Ash, BullionVault Gold News

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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