Gold News

Gold's 6-Month High "A Flight to Safety" as Dollar Gains, Rumors Abound

Gold slipped from Thursday's 6-month high of $999.50 an ounce today, dipping 1% as the US reported fewer job losses than analysts forecast for August but unemployment still rose to a fresh 26-year high of 9.7%.

The Gold Price in Euros had touched €699 overnight, its best intra-day level since April 2nd, before dipping to €696. UK investors wanting to Buy Gold saw the price hold above £605 an ounce, its best level since early June.

The US Dollar meantime rose on the currency markets, nearing the long Labor Day weekend higher vs. the Euro from last Friday.

European stock markets bounced 1.2% from their mid-week sell-off. Gold priced in Dollars stood 3.3% higher from this time last week.

"The exciting part of this Gold up-move," says Scotia Mocatta, "is that it comes without US Dollar weakness."

"There has been a flight out of risky assets into Gold as a safe haven," reckons Peter Fertig of Quantitative Commodity Research in Germany, speaking to Bloomberg. "It's been out of stocks."

"Also providing support to Gold Prices are reports coming out of China that the country's main sovereign wealth fund, the China Investment Corporation (CIC), is under pressure to cross-hedge its US Dollar exposure by investing more funds into gold and oil," says Walter de Wet at Standard Bank.

"How quickly this transition takes place, if at all, is open for debate. However, it has boosted sentiment."

More cautious still, "We expect the Gold Price to trend lower to end-2009," says David Moore at Commonwealth Bank of Australia, "and to continue to drift lower over the course of 2010 as investor interest wanes."

Industry analysts attributed this week's sharp gains – the strongest since the last week of May '09 – to "large fund buying", with rumors in New York of an un-named player buying 5,000 Comex contracts.

Thursday saw the SPDR Gold ETF, listed in New York but storing in London, add 471,000 ounces – its sharpest increase since reaching an all-time record of 1,134 tonnes hit on June 1st.

Overall, open interest in the US Gold Futures market has jumped more than 8% in the last eight days' trading.

That compares with 2009's average weekly increase – in those weeks when open interest has grown – of 3.1%.

World stock markets meantime pushed higher on Friday, cutting this week's losses on London FTSE100 in half.

Crude oil rose, but agricultural commodities fell back after two months of strong gains on news of good US harvests.

Government bond prices slipped, pushing interest rates for new buyers higher, with 10-year German Bund yields rose to 3.37%.

Yesterday the European Central Bank held its key interest rate at 1.0% and announced a second unlimited offer of 12-month banking loans at that record low price.

June's offer saw the ECB – which denies the policy is "quantitative easing" – lend €442 billion to Eurozone banks, equal to almost 5% of annual GDP.

"Financial markets will probably remain in this sweet spot for some time," reckons Riccardo Barbieri, head of international economics at Bank of America Securities-Merrill Lynch.

"The economic data have almost uniformly surprised on the upside, [yet] the leading central banks have credibly signaled to the markets that monetary conditions are set to remain extremely accommodative."

Ahead of this weekend's G20 summit of political leaders in London, an open letter from UK premier Brown, German chancellor Merkel, and French president Sarkozy says that while "there is no alternative to the policy measures adopted to fight the crisis...we should work on exit strategies to be soon as the crisis has ended."

"Note that an exit strategy is not identical to a particular course of action," said ECB chief Jean-Claude Trichet in a speech this morning. "Rather, it lays out a framework and set of principles to govern actions in the face of circumstances in whatever form they take.

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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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