Spot Gold Prices rose to a one-week early Thursday, touching $663.60 before pulling back to bounce off $660 per ounce shortly after the Wall Street open.
Gold leasing rates had earlier risen strongly, hitting their highest level since Nov. 2003, as London's largest bullion banks demanded a greater rate of return for lending their gold over the coming 12 months.
European stock markets cut their morning gains in half to 0.48%, meantime, and US stocks retreated towards break-even as the London close drew near. Stock futures had pointed higher after Bank of America announced a $2 billion cash-loan to ailing US mortgage lender, Countrywide. Bank of America is one of four major US banks that borrowed $500 million each from the Federal Reserve on Wednesday.
Two-year Dollar bond prices slipped and yields rose following this week's apparent "flight to safety" on Black Monday, but the interest-rate charged on one-year loans of Physical Gold Bullion rose faster still in London. The gap widened to 0.45% above the cost of interbank US Dollar loans, said data from the London Bullion Market Association. After gold leasing rates began to turn sharply higher at the start of this month, today's move suggest that large gold owners are increasingly cautious about lending out their bullion.
"If people are not investing in bonds, they have to put their money somewhere else and that's equities or alternative investments such as gold," says Walter de Wet at Standard Bank in Johannesburg.
"The real driver [of today's gains] is confidence in the financial markets."
In Tokyo the broad Topix index of Japanese equities added 3% by the close, while Tocom gold futures for delivery in June '08 gained nearly 2% against the Yen. Tokyo gold prices ended the session near unchanged in Dollar terms, however, as the Japanese currency weakened sharply on the forex markets after the Bank of Japan voted to keep Yen interest rates on hold for the fifth month in a row at just 0.5%.
High-yielding currencies including the New Zealand Dollar rose 2% by lunchtime in London. The Kiwi Dollar has now regained half of the losses it suffered when the Yen rallied sharply during the world stock-market sell-off starting three weeks ago.
"The [gold] charts look better although I think gold needs to break $670 to sustain the uptrend," said one Singapore gold dealer to Reuters earlier today. "Also, there's still a lack of buying interest from the securities side and other big boys."
While Asian investors remain cautious on gold, however, "physical demand has been reported in India and the Middle East, especially in the form of jewelry," said Pradeep Unni of Vision Commodity Services in Dubai to Bloomberg today.
"During the last eight months, $640 has served as a strong support. Each time gold touches that level, there is a substantial rally."
Physical gold sales in the Indian sub-continent are now due to rise sharply as the harvest festival season draws near. Gold jewelry sales traditionally peak in early Nov. with Diwali, the Hindu festival of lights.
"India is picking up a little bit after the low season," confirms Ellison Chu at Standard Bank in Hong Kong. "We saw people shop around...[but] maybe some physical users, not investors."
Total gold demand in China, Taiwan and Hong Kong rose by more than one quarter between April and June, said the World Gold Council on Wednesday, hitting 85.5 tonnes. Mainland demand rose by 32% following the start of the "Year of the Pig" in the Chinese zodiac. 2007 in fact marks the year of the "Golden Pig" on the lunar calendar, an auspicious time in Chinese tradition occurring just once every six decades.
Back in the gold market, meantime, the Euro Price of Gold hit a week's high above €490 per ounce even as the single currency jumped above $1.3580. Both gold and the single currency then retreated against the US Dollar, while the British Pound pulled back from a new one-week high just shy of $2.0100 following a weak data report for business investment. The Sterling Price of Gold had earlier touched £333 per ounce for the first time since last Thursday.