Gold News

Gold's Upside "Driven by Real Interest Rates" as Russia Joins Call for Deposing the Dollar

The price of physical Gold Bullion rose further on Thursday in London, recovering one-half of this week's $35 drop to hold above Wednesday's sharp jump to $938 an ounce.

US stock markets opened the day higher, but European shares were flat, while commodity prices rose nearly 1% on average, led by crude oil.

Government bond yields were little changed as the US Treasury auctioned the last $24 billion of this week's $98bn in new government debt.

"Should real interest rates [adjusted for inflation] move lower or buying by Gold ETFs continue at its current torrid pace," says a note from analysts at Goldman Sachs, "the upside risk to Gold Prices would be significant."

"Lower long-term real interest rates are bullish for gold," agrees Manqoba Madinane for Standard Bank in Johannesburg this morning.

"The heightened uncertainty regarding the role of the US Dollar could [also] support gold – and precious metals in general – despite scrap gold flooding the market."

This morning the Russian Kremlin called for an international conference to discuss "the idea of a new global accounting unit or a new global currency", joining the debate sparked by Chinese policy-chief Zhou Xiaochuan proposing a "super-sovereign reserve currency" on Monday.

Zhou's comments forced a sharp 3-minute plunge in the US Dollar on Wednesday, after Treasury secretary Tim Geithner appeared to welcome – but then refuted – a review of how the world's international currency system works.

"The Dollar remains the world's dominant reserve currency," Geithner said in a live New York interview with the Council on Foreign Relations, reversing an earlier comment that he was "quite open" to using Special Drawing Rights instead.

The notional SDR currency unit – created and held by the International Monetary Fund (IMF) and tracking a basket of major currency values – has lost two-thirds of its value against Gold Bullion in the last 10 years.

Today the Gold Price in Euros touched a 3-session high of €694.50 an ounce, up more than 19% from this time last year.

For Japanese investors now Ready to Buy  Gold, the price traded 1.2% higher today, recovering over two-thirds of last fall's 40% drop, which started from quarter-century highs above ¥3,300 per gram.

Here in London, the Gold Price in Sterling rose to £648 an ounce – almost 3.7% higher from Tuesday's six-week low – while an auction of inflation-linked UK government gilts drew bids for almost three times the debt on offer.

That contrasted sharply with Wednesday's 0.93 cover for an auction of conventional gilts.

Yesterday the Federal Reserve bought $7.5bn of Treasury bonds on the open market, its first such "quantitative easing" in more than 45 years.

San Francisco Fed president Janet Yellen said she wants power for the central bank to issue its own debt, with a view to selling bonds and thus removing cash from the economy – "sterilizing" its extraordinary monetary injections – once the financial crisis recedes.

Ahead of next week's much-anticipated interest-rate decision from the European Central Bank, the ECB reported money-supply growth of 5.9% year-on-year across the 16-nation Eurozone, beating analyst forecasts of 5.5% but lagging UK growth of 19.9% and US money-supply growth of 10.1% – itself more than twice the average annualized rate of the last 20 years.

Norway's Norges Bank yesterday cut its key lending rate to 2.0% and said it may halve that rate again by 2010.

Today, the Reserve Bank of New Zealand denied press rumors of an emergency rate-cut.

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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