Gold News

Gold Rises, Stocks Slip as G20 Draws Inflationary Battle-Line Between Europe and Anglo-America

Gold Prices pushed higher in early London trade Wednesday as Asian stock markets caught up with Tuesday's US gains but European shares slipped back.

Government debt – set to swell by $3 trillion worldwide this year thanks to new stimulus spending – held flat, keeping the yield offered by 10-year US Treasury bonds below 2.70% per annum.

Both the Japanese Yen and US Dollar slipped on the currency markets. Crude oil fell further below $50 per barrel.

"Ahead of the G20 and European Central Bank meetings tomorrow," says Walter de Wet at Standard Bank, "precious metals remain range-bound.

"[But] the Gold Price is still finding good support around $910, from two fronts," he goes on, pointing to a sharp drop in scrap flows since the end of last week plus an increase in financial market uncertainty.

"We should foresee more gold buying ahead of the two meetings tomorrow."

The first London Gold Fix of the second quarter stood 5.6%, 6.7% and 11.7% higher from the start of January against the US Dollar, British Pound and European Euro respectively today.

Global stock markets began April more than 15% lower from their start to the year on the Dow Jones World Index.

"With everyone waiting to see the outcome of the G20 and ECB meetings over the next two days," says a note from London gold dealers Mitsui, "investors may stay on the sidelines for now."

With police warning that anti-capitalist protests in the City of London may turn violent, US president Barack Obama today confirmed the battle-lines between Anglo-American and Franco-German politicians at the G20 summit, telling a press conference that "The United States is committed to working alongside the United Kingdom in doing whatever it takes to stimulate growth and demand."

Summit host Gordon Brown, the UK prime minister, has already proposed a $100 billion Global Trade Liquidity Program, with the World Bank today proposing a similarly reflationary $50bn fund on Tuesday.

But proposals for $1.4 trillion in co-ordinated stimulus spending, aimed at inflating the world economy and leaked last weekend from the UK Treasury, were rejected outright by French president Nicholas Sarkozy this morning.

"I will not associate myself with a communique made of false compromises," Sarkozy who told listeners of Europe 1 radio. "As of today, there is no firm agreement in place."

Sarkozy's finance minister Christine Lagarde will "walk out" of the G20 meetings, reports the BBC after an interview, if France's demands for strict international regulation of banking and finance are not met.

Berlin's refusal to expand Germany's government debt was meantime attacked by Japanese prime minister, Taro Aso, as he arrived in London.

"I think there are countries who understand the importance of fiscal mobilization and there are some countries that do not," Aso told the Financial Times

"That's why, I believe, Germany has come up with their views."

Aso also promised $5.1 billion in aid to emerging Asian economies, but that figure was markedly below the $17bn he offered at the Davos summit in January.

On the data front today, Japanese auto sales fell one-third in March from a year earlier, while business confidence on the Tankan Survey sank to a fresh record low.

Across the 16-nation Eurozone, unemployment rose to 8.5% of the working population in March, while consumer-price inflation across the 350-million citizen currency union sank to 0.6% per year.

Europe's refusal to join the US, Japan and UK in cutting interest rates to zero may be reversed at tomorrow's European Central Bank (ECB) meeting after new data showed German retail sales falling 5.3% in Feb. from a year earlier.

The OECD said Tuesday the Eurozone economy will shrink by more than 4.0% this year.

"If you look at the amount of relative quantitative easing," said Richard Grace, chief currency strategist at Commonwealth Bank of Australia, to CNBC yesterday, "the ECB is already doing much more than the Fed."

The ECB has injected funds worth "up to 23% of Eurozone GDP" into the  region's banks, Grace explained, "whereas the Fed's so far doing about 15.5%" of US annual economic output.

The European single currency has lost 29% of its value against Gold Bullion since the financial crisis broke in August 2007.

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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