Gold News

Gold's Global Gains "Signal Inflation Ahead" as Price Rallies "Off the Charts"

Gold touched fresh all-time Dollar highs in the first hour of London trade on Wednesday, recording its best-ever AM Gold Fix at $1047 an ounce as Asian stock markets ended the day sharply higher.

Gold then slipped back – ticking lower as European stock markets retreated from new 13-month highs – to trade just above $1040 as the New York opening drew near.

"Having rallied 'off the charts'," says Barclays Capital's chief technical analyst, Jordan Kotick, "we are left to resort to projections and extrapolated trendlines to forecast where the move might stop."

"[Uptrend] channel resistance currently is at $1,370; history suggests a run at $1,500."

"The current Gold Price keeps the pressure higher," says the daily note from bullion bank Scotia Mocatta, "with our new targets at 1050 and 1090."

"Gold is rapidly approaching major resistance at 1057," says Commerzbank's chart analysts – bearish on gold since this current move began five weeks and $100 ago – "the top of a 38-year channel" linking the last top of March 2008 with the previous peak of Jan. 1980.

Over on the forex market on Wednesday, the US Dollar bounced from Tuesday's sell-off, but was outpaced once again by the Japanese Yen.

The Yen pushed towards new multi-month highs against everything except the Australian and Canadian Dollars.

The surge in those "commodity currencies" kept a lid on Gold Prices for domestic investors, but Gold priced in Euros, Sterling and Swiss Francs meantime rose to new 7-month highs.

"[Gold] is by no means unstoppable," cautions Kotick at Barclays Capital, "as none of the charts show prices [in non-US currencies] concurrently pressing against their respective all-time highs."

Measured against a basket of the world's top 10 currencies, however, gold ended Tuesday more than 3.0% higher, jumping to its best level since the records set in late Feb. '09.

BullionVault analysis today showed its Global Gold Index rising within 3.0% of the all-time high.

"Gold is a forecaster of inflation instead of a coincident indicator," said  based on its surge before 1980, said Dan Greenhaus, chief economist at institutional Wall Street broker Miller Tabak & Co.

"There's nothing right now that says inflation will break out to all-time highs. But gold can move considerably higher from here. Should growth return, inflation will return."

A report published by trade-marketing group the World Gold Council in late 2005 confirmed gold as a leading indicator of inflation across five decades of data, with US Producer Price inflation lagging moves in the Gold Price by around 12 months.

Citing gold as a safe haven and portfolio diversifier in a new report issued Tuesday, "Gold is unique in that it does not carry credit risk," the World Gold Council says. "[It] is no one's liability.

"And unlike a currency, the value of gold cannot be affected by the economic policies of the issuing country or undermined by inflation."

On the data front early Wednesday, Japan's Leading Economic index came in weaker-than-expected for August, as did Eurozone GDP growth, German factory orders and UK shop prices.

Government bond prices rose as Western stock markets eased back, pushing the yield offered by 10-year US Treasuries down to 3.24%.

The Treasury today auctions a further $20 billion-worth of 10-year debt. Economists forecast last month's budget will show the first September deficit since 1991.

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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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