Spot Gold Prices rallied in the first-half of London trade on Wednesday, adding $4 per ounce from the overnight low to hit $666 after Asian stock markets ended the day sharply lower.
A UK hedge fund said it may have to liquidate $6 billion in assets due to the ongoing global credit crunch. The European Central Bank announced that growth in its M3 measure of the Eurozone's money supply surged to a quarter-century record in July, rising by 11.7% from a year earlier compared with 10.9% growth in June.
"The outlook for gold is still favorable," reckons Mark Pervan, commodities strategist at Australia & New Zealand Banking Group. "The economic balances in the US would point toward a weaker Dollar and higher gold prices."
US Treasuries also pointed to higher long-term gold prices, as strong bids for government debt kept yields near 5-month lows despite the threat of higher food prices following the poor summer in Europe and surging grain demand from India and China.
The last two extended surges in Spot Gold Prices – during the late 1970s and between 2003 and early '06 – came when rising inflation and low bond yields pushed real US interest rates below zero. Last week, the real return offered by three-month US Treasuries above and beyond inflation slipped to its lowest level in more than a year.
US crude oil meantime was little changed below $72 per barrel today, while Asian stock markets fell hard – down 1.4% on the MSCI Asia-Pacific index – after the Japanese Yen spiked on the currency markets and US equity investors suffered their worst day in three weeks.
The S&P 500 closed 2.3% lower on Tuesday despite minutes from the Federal Reserve's latest policy meeting that tried to assure investors it "expected a return to more normal market conditions." The meeting was held on Aug. 7th. Since then, the Dow Jones Index has lost 3.4% of its value inside three weeks.
The FTSE100 in London gapped down at Wednesday's open as Whitbread Plc, the $6.2 billion pub and restaurant chain, said it had been advised to pull all corporate bond issues which are not "absolutely pressing". Cheyne Finance – an ailing division of Cheyne Capital Management, which was crowned "the best CDO manager of 2006" by EuroMoney magazine for "its breathtaking pace of innovation" – said it may have to liquidate $6 billion in assets after breaching a key ratio due to "mark-to-market losses". The UK's top 100 shares have now dropped by 10% on average since the FTSE hit a six-year high in mid-July.
"Gold was caught up in the overall overnight declines," reports Phil Smith for Reuters Technical India, "but the weekly trendline and the 200-day moving average are still holding as both cut in below the 660 level.
"Both the trendline and the moving average are significant support levels and a break below would be significant. Expect overhead resistance at the early August peaks around 675 on any bounce."
French and German investors wanting to defend themselves against the surge in Europe's money supply by Buying Gold Today saw the price move back above €489 per ounce, even as the Euro itself regained half-a-cent to $1.3620 after Tuesday's 0.8% drop against the Dollar.
The British Pound fared better, rising to $2.0150 and capping the Sterling Price of Gold below £331.20 by midday, while in Tokyo trade today, the Yen pushed gold 1.3% lower by the close of the Tocom futures market.
The Yen then dipped to ¥114.50 against the Dollar, but nearly 1.8% higher for the week so far, it continued to trade more than 2% higher against the Euro from Monday's start. The New Zealand Dollar – currently offering the second highest interest rates of any industrialized economy at 8.25% per year – has dropped more than 5% against the near-zero yielding Yen so far this week.
Over in Mumbai, meantime, Indian gold futures dipped as the Rupee rose against the US Dollar, and the Economic Times of India reports that the current lull in world gold prices may encourage a sharp increase in demand for coins and medallions during India's festive season, starting next month.
Sahil Kapoor, an analyst at Kotak Commodities in Mumbai, says Indian gold demand may grow by 10-12% this year. According to "conservative industry estimates" from GFMS, the London-based gold consultancy, growth may be nearer 20% this autumn compared with the festive season in 2006.
"Relatively stable domestic prices have led people to again consider Gold As An Investment," says Kapoor, and now banks as well as local jewelers are stocking up on coins and medallions ahead of Diwali, the Hindu festival of light which coincides in late October with the traditional Indian wedding season.