Gold News

Gold Hits 14-Week High in Dollars, Higher Interest Rates "No Risk", as Germany's Merkel Blasts Quantitative Easing

Spot Gold prices dropped 1.5% from a new 14-week high in lunchtime trading in London on Wednesday, bouncing higher from $975 an ounce as stock markets fell and the US Dollar rallied.

"Higher interest rates would pose a risk to gold, but higher interest rates aren't going to happen," said Frank Holmes of US Global Investors in opening the World Mining Investment Congress in London on Tuesday – "much reduced in size this year from last" according to one delegate at the £3,600 event ($6,000).

"If you are not long, you are going to be wrong on gold. Longer term, governments will do everything to print money and gold will slowly become an important asset class worldwide."

Today French, German and Italian investors now Ready to Buy  Gold saw the price hold below €690 an ounce as the single currency retreated from a new 2009 high vs. the Dollar above $1.43.

The Gold Price in Sterling – stuck in a down-trend since peaking at £700 an ounce on Feb. 20th – meantime flirted with 7-week lows near £590 after the British Pound leapt yet again on the currency market.

Hitting fresh 7-month highs above $1.66 to the Dollar and €1.16 to the Euro today, Sterling has now recovered 22% of its value from February's two-decade low.

"We have clearly had a case of selective myopia," writes Steve Barrow, currency strategist at Standard Bank in London, "where the market has ignored all the bad news about the UK and, instead, focused only on whatever crumbs of comfort that there have been."

Pointing to the net "short" position held by currency speculators still betting that the Pound will fall, Barrow repeats his call for $1.82 within a year – and perhaps "a lot sooner than we think" – because "the market is still not back to a more neutral position for Sterling."

Over in the commodities market on Wednesday, US crude oil futures moved sideways just north of $68 per barrel – a level first broken in Aug. '05 and more than 50% below last June's top – while copper prices at the London Metal Exchange eased back from yesterday's new 7-month highs.

Commodity specialists Platts report that copper traders from China – likely to remain a net importer in 2009 and buoyed by government stockpiling - have been offering to sell metal onto Japanese buyers after prices broke above $5,000 per tonne.

"China's steel industry will soon be swamped with raw material," the newswire goes on, quoting the China Mining Association's fear of 200-300 million tonnes of excess iron ore if recent stockpiling isn't unwound.

China imported more than 443m tonnes of iron ore in 2008, well over half of total global deliveries.

But "If [Asian central banks] make a loss, it's okay," said a source quoted by Reuters today.

"As long as they are sticking to the policy imposed from the very top, they are not concerned with short-term gains...They are not competing against mutual funds or hedge funds."

Speaking on condition of anonymity after US Treasury secretary Tim Geithner's series of meetings in Beijing this week, "The US Treasury bond is a partnership the Chinese government holds," the source went on.

China's central bank grew its stockpile of US government debt by 56% in the last year to $768 billion, says the newswire.

"What other central banks have been doing must be reversed," said German chancellor Angela Merkel, at a conference in Berlin on Tuesday.

"I am very skeptical about the extent of the Fed's actions and the way the Bank of England has carved its own little line in Europe."

The Federal Reserve has almost trebled its balance-sheet in the last 12 months, buying and lending against mortgage-backed and commercial-loan securities that were otherwise untradable.

Also slashing its interest rate to near-zero, the Bank of England has embarked on £125 billion of "quantitative easing" in the UK economy, effectively creating money to buy government debt, and covering well over 65% of this year total state spending.

"Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds," Merkel went on.

"We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years' time."

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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