Gold News

Gold: Fresh Record Highs vs. Dollar, Euro, Sterling & CAD as Equities Bounce on Fed's "Moral Hazard"

Gold Prices raced higher yet again in London on Tuesday, hitting a new all-time high of $933 per ounce as global stock markets continued to bounce from last week's sell-off, but only in thin trade.

"It's a big week on the calendar," says Nick Hodson at Lloyds TSB Private Banking in London. "There is not going to be a great deal of volume in equities ahead of the Fed's interest-rate decision tomorrow."

Gold also pushed up to new record highs vs. the Euro, British Pound and Canadian Dollar as coal and wheat prices jumped on the world's commodity markets.

Oil rose above $91.70 per barrel, the Euro reached a one-week high vs. the Dollar, and government bond prices ticked lower after the US Treasury Dept. sold $24 billion in two-year notes yesterday.

The United States will sell another $14 billion in five-year notes today, but the yield on existing 5-year Treasuries crept only three basis-points higher this morning to 2.82% as prices slipped.

Consumer-price inflation in the United States was last pegged at 4.1% per year, leaving US bond yields wildly negative – a strong incentive for money to continue flowing into rare, tangible assets such as Gold as investors seek to defend their wealth.

"A lot of stops were being triggered when the Gold Price broke $925," said William Kwan, a gold dealer in Singapore for Phillip Futures, to Reuters earlier.

"In the spot market I am looking at $945 for the upside."

Looking ahead, "we may see some sell-off after the Fed's announcement," reckons Ronald Leung of Lee Cheong Gold Dealers in Hong Kong. "Gold may consolidate after that."

The Federal Reserve's next move in US monetary policy – scheduled for 14:15 EST on Wednesday – will cut a further 50 basis points off the cost of borrowing dollars according to 86% of the betting on interest-rate futures.

"The Fed can clearly support the stock market and prevent it from going too low," believes Antoine Beaugendre, an equity strategist at Societe Generale, the second-largest bank in France.

It's now being rocked by calls from the French finance minister, Christine Lagarde, for senior management to resign after losing $7.1 billion to a "rogue trader" – rumored to have been promised a €300,000 bonus – that prosecutors said on Monday SocGen was warned about last November.

Lagarde calls the SocGen scandal a "crisis", and the world's financial system "sometimes seems out of control" added French president Nicholas Sarkozy at a political summit in London today, hosted by UK premier Gordon Brown – himself reeling from Britain's first banking run in 130 years.

The summit aims to agree European policy on regulation and financial oversight before the meeting of G7 leaders in Tokyo next week. It "may turn out to be long on rhetoric and short on concrete outcomes," as the Financial Times puts it, but "Mr Sarkozy is expected to give the talks a 'moral' dimension after the events at SocGen."

Equity traders backed the ever-widening dimensions of 'moral hazard' in Europe today, buying financial stocks ahead of the Fed's widely expected support for investment-bank balance sheets. The broad mining sector pushed higher too, helping to add 1.3% to the broad FTSEurofirst index by the AM Gold Fix in London – set at $927.50 per ounce.

Asian-Pacific stocks also rose across the board, with Tokyo gaining 3% for the session after new jobs data showed Japanese vacancies falling to a two-year low while unemployment remained at 3.8% in Jan.

Retail sales for 2007 as a whole showed just 0.1% growth, however, highlighting "Japan's dependence on exports" as David Cohen at Action Economics in Singapore notes today.

The Yen continued to weaken this morning on the currency markets, pulling back to ¥107.04 from last Wednesday's near-three year high of ¥105 per Dollar. That helped gold futures traded at the Tocom for delivery in Dec. '08 rise by 0.9% to reach a new 24-year high of ¥3,188 per gram.

Platinum prices rose by the ¥120 per gram daily limit to reach a fresh all-time high.

"Jewelers and producers are shocked," said a gold dealer in Singapore to the newswires this morning. "I expect gold producers to be hedging at these price levels. They will have no choice but to hedge or their assets will be exposed to price risk."

South African gold miners may certainly want to lock in the current record high Gold Price by selling their future output forward – if only because any expansion in their future output now looks in doubt thanks to the power outage currently hitting the world's second largest gold-producing nation.

Eskom, the state-owned electricity supplier, declared force majeure on Friday and cut off supplies to South Africa's gold miners and other heavy industrial users. Only open-cast mining for coal – the country's primary energy input – has managed to continue.

Today PT Bumi Resources, the largest coal exporter in Indonesia, said the world price of coal may rise another 60% this year after quadrupling since the start of this decade. "Declared global reserves of 'hard coal' have fallen by 25% since 1990," adds the latest edition of the New Scientist – a much larger drop than could be accounted for by consumption alone, pointing to significant downward revisions.

Meantime in Johannesburg, South Africa's Chamber of Mines said today that shifts may resume next week after meeting with Eskom management, and that helped the broad JSE Gold Miners index to rally 1.2% by lunchtime.

But South Africa's mining stocks remain 7.2% below last Thursday's close – whereas the price of physical Gold Bullion, free from management, equity and input price risks, has risen by more than 2.1% against the South African Rand since then.

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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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