Gold News

Gold Up, Dollar Down; "Silver Benefits" as Paulson & Soros Further Extend Gold Exposure

The Gold Price rose against a falling US Dollar on Friday morning in London, recovering one-third of this week's 3% drop as world stock markets crept towards new multi-month highs.

Crude oil pushed higher above $82 per barrel after the International Energy Agency called January's 28% jump in China's energy demand "astonishing".

US Treasury bonds meantime fell with the Dollar, nudging interest rates higher.

Thursday's $13 billion auction of new 30-year debt saw a record proportion sold to "direct bidders" – a group which excludes foreign central banks but includes domestic US money managers.

"Silver is benefiting from the higher Gold Price," writes Walter de Wet at Standard Bank today.

"Speculative interest (according to US data) is fairly low compared to platinum, palladium and gold. This could make silver less susceptible large price swings – up and down."

On the forex markets today, the Euro jumped to a 1-month high vs. the Dollar on news that industrial output across the 16-nation currency zone rose last month at its fastest pace in 20 years.

That capped the Gold Price in Euros at €812 an ounce, flat for the day and 3% below last Friday's all-time high.

Sterling also jumped – capping the Gold Price for UK buyers beneath £740 an ounce –after the Labour government said this month's pre-Election budget will neither raise tax rates nor make "giveaway" promises.

"Until now, Germany has always defended the idea of a strong Euro," notes Patrick Artus at French bank Natixis.

"It reduced the price of Germany's imports of intermediate goods, without reducing its competitiveness against other Eurozone countries – or against the UK, which also had a strong currency.

"However, [because] domestic demand in European countries will be sluggish for a long time to come, Germany may change its stance...and desire a weak Euro to facilitate market-share gains outside the currency union."

In the United States, San Francisco Fed president Janet Yellen – who said last month that she would "take interest rates into negative territory if it were possible" – is the White House's choice for Federal Reserve vice chairman, according to sources quoted by the press today.

"There is a range of evidence...to suggest that quantitative easing is having its desired effect," said UK policy-maker Spencer Dale in a speech this morning, 12 months after the Bank of England's £200 billion ($300bn) money creation scheme started.

"Asset prices have increased substantially, companies have made record recourse to debt and equity markets, confidence has recovered, and inflation expectations remain firmly anchored.

UK gilts ticked higher on Friday morning, knocking the yield offered by 10-year government debt down to 4.12%.

German Bunds slipped in price, meantime, nudging their 10-year yield up to 3.20%.

Over in the equity markets, Frankfurt's Dax index added 0.7% but London's FTSE-100 pushed towards 21-month highs – outstripping the US stock market's near two-thirds recovery of the record peak hit in late 2007.

Junior Canadian gold miner NovaGold meantime secured $100 million from pro-gold hedge fund Paulson & Co. on Thursday, plus a further $75m from Hungarian wealth-manager George Soros' Quantum Fund.

"Despite burning a substantial amount of cash, the company is no closer to having a single operating mine than it was in 2004," says one financier quoted by the Wall Street Journal.

Soros was widely misquoted by the media last month as saying that "Gold is [now] the ultimate bubble."

His Soros fund recently doubled its gold-price exposure, extending its position in the SPDR Gold ETF.

"For well over a decade, big gold miners have indulged in heavy merger and acquisition activity," writes Barry Sergeant at MineWeb. "But now two of the world's biggest three gold miners have started moves – no matter how tentative – towards possible constructive disintegration."

World No.1 Gold Mining group Barrick is floating 25% of its African Barrick venture on the London stock market this month.

AngloGold Ashanti, the world's fourth largest listed gold miner, "has indicated that it may split its global portfolio" notes Sergeant.

"Gold companies increasingly battle to find 'replacement ounces' for ones that are mined daily out of the ground. Investors have long pressurized the 'grow ounces' theme [but] for now it seems to have run out of steam, both on the production and acquisitions front."

At the national level, meantime, former world No.1 South Africa "slipped to fourth spot in the global gold producer rankings" in 2009, notes Allan Seccombe over at MiningMX, "after its gold output fell nearly 6% to a level last seen around 1908 as grades continued to slide."

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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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