Gold News

Gold hits 16-week high vs. Euro; "leave Sterling well alone"

Spot Gold Prices rose sharply against the US Dollar in early New York trade Tuesday, very nearly reaching $680 per ounce as the Euro Price of Gold broke a 16-week high above €500 per ounce.

Getting back to work after the long Labor Day weekend, US stock traders meantime saw the S&P move 0.4% higher after weaker than expected US manufacturing data.

European stock markets also turned higher after dipping early on, but the Euro and British Pound were both sold hard on the currency markets, dropping through $1.3560 and $2.0100 respectively as the Japanese Yen slipped back from an earlier rally to ¥115.40 per Dollar.

In Tokyo, the Nikkei stock index had ended the day 0.6% lower.

"Gold remains remarkably well bid despite some Dollar strength," said David Holmes of Dresdner Kleinwort in London to Reuters.

"It is playing a little bit of safe-haven role, physical demand is excellent and production is looking pretty sloppy.

"Despite high prices, producers can't even maintain the 2,500-tonne [per year] production level. So from a fundamental point of view, the Gold Market is quite good."

The Istanbul Gold Exchange reports that Turkey's gold imports rose 25% in Aug. from a year before. Gold mining output in South Africa, on the other hand, has now halved in the last decade. Russia's output slipped nearly 2% between Jan. and July.

"The import data still shows good gold demand in Turkey," reckons Suki Cooper at Barclays Capital. "September should be strong as well."

Even as the US Dollar rallied against the European currencies on Tuesday, the subprime crisis in the US housing market continued to disrupt European investment institutions.

Germany's IKB bank said yesterday that it will post a loss of perhaps €700 million ($953 million) as a result of its failed US mortgage-bond investments. Three predatory takeover bids are rumored for Landesbank WestLB, another German bank hit by the US subprime collapse.

The weekly Wirtschaftswoche newspaper warns that the credit crunch now hitting German banks has barely begun, and Josef Ackermann – head of Deutsche Bank – today tried to downplay the impact of the subprime sector's collapse.

His bank was forced to close its proprietary credit trading desk last week after losses of €100 million ($136 million).

With banks under pressure, interest-rate futures point to "no change" from both the ECB and Bank of England when they vote on Thursday. "I'd leave Sterling well alone at the moment,'' says Simon Derrick, chief currency strategist at Bank of New York Mellon Corp in London.

"It's a hostage to investment sentiment and carry trade isn't doing very well, given that we continue to have bad news from the credit market."

Today's PM Fix in London recorded the highest Sterling Price of Gold since June 7th. European investors wanting to Buy Gold Today saw the Fix break above €500 per ounce for the first time since May 10th.

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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