Gold News

Gold Jumps $50 in 21 Hours as Fed "Prints Money", Dollar Falls, Stocks & Commodities Surge

The price of gold leapt at the start of US trading on Thursday, coming within 0.5% of last month's record highs – and gaining $50 per ounce inside 21 hours – as the US Dollar fell in response to the Federal Reserve's re-launched quantitative easing program.

"Currency devaluation remains firmly en vogue," said one London bullion dealer this morning.

The weakening Dollar "is what's helping gold," notes commodity strategist Jesper Dannesboe at SocGen.

Crude oil today hit a 6-month high as the Euro and Sterling both jumped to fresh 10-month highs vs. the Dollar, capping the Gold Price for European investors at a 1-day high.

Asian and European stock markets added almost 2% on average. New York stocks opened the day over 1% higher.

"We remain bullish on gold," says UBS chief metals strategist Edel Tully, because of "inflation expectations on the rise, low real interest rates, the fear of currency debasement, resilient physical demand, and limited scrap sales."

The Fed said late Wednesday it hopes to pump $600 billion into the US economy between now and June 2011, buying $75bn of long-dated government Treasury bonds each month and then reviewing the program.

The US central bank also voted to reinvest (and again into T-bonds) the money it's being repaid from earlier mortgage-bond purchases.

"[That means] bringing the total closer to $800bn," notes Walter de Wet at Standard Bank today. "Given the relationship between precious metals and liquidity, we view this as extremely positive for precious metal prices."

The New York Federal Reserve meantime confused bond-market analysts overnight by "temporarily relaxing" the 35% limit imposed on its purchase of any single issue of US government debt, but moving to breach it in what a press release called "only modest increments".

The New York Fed's operational account – where QEII purchases will be held – already owns 30% of T-bonds maturing between 2014 and 2020.

Two-thirds of the Fed's newly created $600bn will be spent on T-bonds maturing between those dates, notes Tracy Alloway at the FT's Alpha blog.

"The economy isn't measuring up, so the Fed is going to change the ruler," said James Grant, editor since 1983 of Grants Interest Rate Observer, to Bloomberg last night.

"They talk about quantitative easing or long-term asset purchasing...No. It is money printing...They intend to make everything seem better with a devalued Dollar."

But "Gold has [already] flown up in price," says Gordon Fowler, CIO at Philadelphia-based wealth manager Glenmede, speaking to Reuters this week at the newswire's Wealth Management Summit in New York.

"Inflation would have to go up 90% in this country for [the current Gold Price ] to get back in line."

"That [ Gold Investment ] play has already passed by," agrees Lawrence Hughes, chief executive of BNY Mellon Wealth Management.

"Investors need to be careful not to do what people do in line at the grocery store: always jump to the fastest-moving line or, in this case, to the hot-performing category."

Dollar Gold Prices have risen 25% so far this year. India's BSE stock index has gained 26% for US investors, while the Japanese Yen has risen 36% on the currency market.

By today's new 30-year record-high London Fix, the price of silver had risen by more than 50% from New Year's Eve.

"Investors need to get the money from under the mattress and working again," reckons Robert McCann, chief executive of Swiss bank UBS's American wealth management office, also advising his clients to quit gold and move back to "risk assets", according to Reuters.

New data meantime showed stronger-than-expected new US jobless claims for last week, plus a sharp rise in productivity and a fall in per-person labor costs.

Eurozone factory input prices rose 4.2% year-on-year in Sept., the 16-nation's data agency said, while Germany's services sector expanded for the sixth consecutive month.

The European Central Bank, however – like the Bank of England in London – voted today to keep its interest rates at a record low for the 20th month running.

Over in Moscow on Thursday, the Finance Ministry cut Ireland and Spain from its approved list of countries whose government bonds can be bought and held by Russia's two sovereign wealth funds.

Buying Gold today...? Make it simple, safe and cost-effective like nowhere else by using world No.1 BullionVault...

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals