Gold News

Gold Hits Fresh US Highs, "Dollar Still Over-Valued" Says IMF, as G20 Vows to Extend Stimulus

Gold jumped to new all-time records for the third time in four trading days early Monday in London, recording an AM Gold Fix of $1108.50 an ounce – up more than 27% for 2009 to date – as the US Dollar fell hard on the currency markets.

World stock markets added 0.4%, continuing their four-month surge, after the weekend's G20 meeting of leading industrialized nations pledged to "continue to provide support for the economy until the recovery is assured."

Government bonds rose, pushing 10-year US Treasury yields down to 3.47%, and silver crept up to a 3-week high of $17.68 per ounce.

Crude oil, base metals and foodstuffs slipped, however, dragging the S&P GSCI commodity index 2.2% lower.

"With gold continuing to sail in uncharted waters it is difficult to say where we will head from here," says a note from Mitsui, the London market-maker, "but with investment interest at an all time high there remains room to the upside."

Latest data – released by US regulator the CFTC on Friday – showed non-industry speculators growing their bets on the Gold Price rising by 2.1% in the week-to-last Tuesday.

"Recent developments suggest that speculators will have subsequently extended their long positions," notes Walter de Wet at Standard Bank today, "but much of the recent trading action has been technical and any correction may well trigger substantial sales."

"Within the longer-term trend," says de Wet's technical analyst colleague Darren Grabham at Standard, "we continue to forecast a move to $1325.

"An interim target level is at $1180."

Monday's new Dollar highs came as the US currency dropped more than half-a-per cent on its trade-weighted index.

Commodity and especially Gold Mining currencies such as the Australian Dollar and South African Rand rose sharply. The Euro hit its best level in two weeks vs. the US Dollar, briefly breaking above $1.50.

Sterling rose faster still, however – despite news of a faster-than-expected rise in German factory orders – notching up a 14-week high vs. the Dollar and a two-month high against the Euro.

That capped the Gold Price in Sterling just below £660 an ounce, holding tight inside a range of just 0.9% for the fourth session running. Eurozone investors wanting to Buy Gold today saw the price move above €740 an ounce.

Besides its Dollar price, Gold hit a series of new records against Chinese Yuan, Indian Rupees and Vietnamese Dong.

"Why should China go on losing in Dollars when the Gold Price is rising?" asks William Rees-Mogg in The Times of London today.

"This new logic extends outside gold and outside currencies. The real struggle between gold and paper is a struggle for power."

"Over the past year, central banks – which have been net sellers of gold – are now a new and increasingly important source of demand," says Aram Shishmanian, CEO of marketing-group the World Gold Council, commenting on Sri Lanka's announcement that it's been Buying Gold for its forex reserves.

Alongside China's 1054-tonne hoard reported in April – and India's 200-tonne purchase of IMF gold reported last week – "This latest announcement demonstrates that many central banks are reassessing their reserve asset management policies, both in traditional 'over weighted' [Western] countries as well as the key Asian central banks," Shishmanian believes.

For the world's No.1 reserve currency, in contrast, "There are indications that the US Dollar is now serving as the funding currency for carry trades," says the International Monetary Fund in a new report, pointing to the United States' record low interest rates and saying that financial speculators are borrowing Dollars and selling them to finance better-yielding investments elsewhere.

"These trades may be contributing to upward pressure on the Euro and some emerging-economy currencies," says the IMF's report.

"[The Dollar] has moved closer to medium-run equilibrium [but is still] on the strong side."

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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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