Gold News

Gold hits 27-year high on "crisis of confidence" ahead of Fed speech

Spot Gold Prices broke above $731 per ounce in London on Thursday – a 27-year high – as world stock markets slipped and the US Dollar sank.

The Spot Gold Price also came within a few centimes of a 16-month high versus the Euro. It broke above £363 per ounce for investors in Britain, where a run on Northern Rock – a leading mortgage company – has now destroyed confidence in the central bank governor, Mervyn King.

Dr.King struggled to justify his handling of the crisis in a meeting with policymakers today, while the Bank of England said in a data report that inflation of the UK money supply soared to a 3-month record of 13.5% annualized growth in August.

The FTSE100 lost 0.8% by lunchtime in London, and New York futures pointed down ahead of the US open. Crude oil rose above $82 per barrel.

"The market is worried about the liquidity crisis," says Frederic Panizzutti, a senior vice-president at MKS Finance, the Swiss refinery group, in an interview with Bloomberg.

"There is a crisis of confidence and people are worried how deep an impact it will have on the economy and the Dollar. We are seeing some asset re-allocation [into gold]."

Panizutti forecasts the Gold Market could hit $750 per ounce in the next three months.

Credit Suisse today raised its 12-month forecast for investors who Buy Gold Today, increasing the expected trading range from $670-$720 per ounce to $730-$770. Switzerland's second-largest bank also raised its targets for silver, platinum and palladium.

"One thing that should be clear is that this is not a Dollar-friendly Fed," says Jim McCormick, head of currency research at Lehman Brothers in London.

"The biggest focus going forward is going to be the monetary policy expectations."

The current head of the US central bank, Ben Bernanke, will give a press conference addressing the state of the US economy – and its ailing currency – at 10:00 EST today.

Overnight, the Dollar sank to a fresh lifetime low against the Euro and lost value against 15 or the world's 16 most-actively traded currencies in all. Crude oil rose further above $82 per barrel. Wheat prices bounced hard after two days of losses.

"The market is concerned about inflation risks,'' reckons Richard McGuire, a fixed-income strategist in London for RBC Capital Markets. "The Fed isn't done easing, it will continue to look through inflation as it focuses on the downside risks to growth."

The National Retail Federation said today that US retail sales could see their slowest growth in five years during Nov. and Dec. In the futures market, interest-rate traders now put the odds of the Fed cutting another 25 points off its main target rate at next month's meeting at 80%.

But while the price of short-dated US bonds continues to rise – pushing yields lower to reflect those lower Fed rates ahead – the price of longer-term US bonds slipped again early Thursday.

More sensitive to long-term inflation fears than short-dated bonds, the 10-year US Treasury bond yield ticked up to 4.56%. The gap between yields offered by two-year and 10-year US government debt has now widened to a 28-month record.

Meantime in the Gold Market, the latest Refining Monitor from Mitsui says that "should the precious metals complex run into pressure, we expect that physical players will be on stand by for support."

The Monitor notes that the Indian Rupee has now strengthened to a nine-year high versus the US Dollar. While this might "not be enough to re-ignite some buying interest" from Indian consumers – buyers of one ounce in every four sold worldwide last year – the World Gold Council told The Statesman newspaper on Sunday that Indian gold demand could hit a record this year.

In the first half of 2007, Indian gold sales matched almost 75% of the total demand seen in full-year 2006.

"We are confident that India will see very positive growth in demand for gold," said Matthew Graydon of the WGC. "We would be delighted to see Indian gold demand surpass 1,000 tons, a landmark. We believe this figure to be achievable this year."

To Buy Gold Online at live-market prices and own physical, proven gold bullion – outright in your name, and securely in Zurich, Switzerland – visit BullionVault and claim a complimentary gram of gold now...

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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