Gold News

Gold's "Failed Break" of June's High Sees Investors "Buying the Dips" as Goldman Sachs Urges $1Trn QE

Gold and Silver ticked back from yesterday's near-record and 30-month highs to the Dollar in London on Thursday, while world stock markets rose and government bonds edged down.

The US currency rose on the forex market, holding the Gold Price in Euros near a 10-week high at €31,800 per kilo, as crude oil crept a few cents higher to $75 per barrel.

Gold's failure to break June's all-time high above $1265 an ounce on Wednesday "triggered light selling in Asia," says a Japanese metals dealer today.

"Physical gold demand remains strong on price dips" however, says Standard Bank's daily note, and "We don't see much sale of gold scrap despite the higher prices," a Hong Kong Gold Dealer tells Reuters.

Recycled "scrap gold" flows to the global market outweighed new jewelry demand for the first time since 1980 in the first quarter of 2009.

For the first half of 2010, UK pawnbroking chain H&T reported a near-quadrupling of scrap-gold volumes, helping boost its headline profit by 70%.

But since end-June, however, it has closed 11 of its 56 shopping-mall "gold bars", reports Bengt Saelensminde at MoneyWeek.

"This isn't a repeat market. Once Granny's jewelry has been melted down into bullion to feed investor demand, it ain't coming back."

The British Pound meantime bounced from an earlier drop Thursday lunchtime, pushing gold back down by £817.50 an ounce, after the Bank of England held its key base rate on hold at 0.5% for the 19th month running.

It also stuck with its outstanding £200bn of "asset purchases" (i.e. government bond holdings) for the tenth month in succession.

Repeating a forecast already made twice this week by Goldman Sachs' economic team, "continued structural weaknesses...will likely lead to more quantitative easing," says the investment bank's forex team.

Chief US economist Jan Hatzius predicts a further $1 trillion of quantitative easing from the Federal Reserve, with his colleague Sven Jari Stehn backing that level of new money creation either now or early next year.

"The large-scale asset purchases, the expansion of the balance sheet, were exactly the right thing to do during the depths of the crisis. [But] it's not as clear that they're as effective at this current juncture," said former Fed voting member Frederick Mishkin to CNBC on Wednesday.

"My view [now] is you better think of the long-run costs pretty damn hard and then ask, are the benefits sufficient to pull the trigger.

"Think about the screams in Congress."

Back in the Gold Bullion market, Barclays Wealth is advising clients to sell gold short, TheStreet.com reports today, because "At some point it will be evident that the crisis we should be worried about is not a credit crisis [and] it's not a financial crisis any longer.

"It is a crisis of high unemployment, low zero inflation and very low growth," says vice-president and strategist Michael Crook. "All of those things are bad for gold."

The very same economic and financial situation is in fact "a perfect storm" for gold however, according to Credit Agricole analyst Robin Bhar, quoted by South Africa's Business Day.

"All the factors seem to have come together at a time when physical gold demand is also propping up the market, but that is probably not going to be the factor that drives gold to new highs.

"It has to be this Gold Investment desire."

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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.

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.

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