Gold News

Gold Bounces Off 6-Week Low, Rises in Euros, as Oil Jumps on Iraq-Iran News, Bond-Giant Switches to Cash

Gold Prices bounced from their lowest level since Nov.8 early in London on Friday, trading back above $1100 an ounce as world stock markets also rose but headed into the weekend nearly 1% down for the week.

Heading for a weekly gain vs. the Euro at €770, gold showed its third week-on-week loss for UK and US-Dollar investor, down 7% and 10% respectively from early Dec.'s all-time record highs.

Crude oil meantime jumped above $74 per barrel as the Copenhagen summit neared its end with no firm agreement on climate change.

Reports said Iranian troops had crossed the Iraqi border and "surrounded an oil well" on Thursday morning.

"The uncertain financial climate is still widespread," notes Andrea Aratoli at Italian bullion dealers Italpreziosi in Arezzo.

"The broadening...of the balance-sheet deficit of countries most hit by the crisis, and the great volume of liquidity on the market, [are] taking money to all markets, including gold, thus amplifying the bullish movement and increasing the risks of speculative bubbles."

"We do not believe gold has experienced a bubble," counters a report from CIBC, Canada's fifth-largest bank by deposits.

The recent 8% pullback in Gold Prices does not mean the longer-term trend has ended "any more than the pullback in May-June of 2006 signaled the end of bull market for bullion."

After surging 41% in just 5 months, the Gold Price fell by one quarter during May and June 2006, recovering that peak only after the global financial crisis broke in August '07.

"In the absence of growing mine supply, we anticipate that [Gold] will continue to perform well over the next few years and possibly longer," says CIBC.

"Short-term gyrations however will also be the norm."

UK and European banking shares continued to fall early Friday as analysts studied
proposals published by the Basel Committee on Banking Supervision to
improve supervision and risk management.

The largest stocks traded
almost 10% below last Friday's close.

On the currency market, the Euro slipped from an overnight bounce off 15-week lows to the Dollar despite news that the 16-nation Eurozone grew its trade surplus to €6.3 billion ($9bn) in October.

The Ifo Index of German business sentiment rose further in Dec., the research group said, while official data showed UK business investment falling less quickly than expected last month.

The British government had to borrow a record £20.3bn  ($32.9bn) in Nov. however, taking net national debt above 60% of annual GDP.

The Pound fell back towards 9-week lows to the Dollar, but held near a 3-month high vs. the Euro.

London's Evening Standard reported that dental patients are asking to keep their braces after treatment's finished, selling them to scrap-gold dealers directly rather than leaving the dentist to raise cash.

Former Home Secretary Jacqui Smith called on the government to regulate "cash for gold" services, complaining that they don't require absolute proof of ownership from people selling unwanted jewelry.

"One of my constituents who was unfortunately burgled was surprised that the burglars focused almost completely on taking jewelry," she told the House of Commons.

"Despite recent pressure, gold has managed to attract fresh ETF inflows," notes Walter de Wet at Standard Bank today.

"Geopolitical tensions in the Middle East have also helped lend support."

"With little [US] economic data to move the market today it will be interesting to see which direction the market takes," says Mitsui.

Bloomberg notes meantime that world-leading bond fund Pimco has grown cash as a percentage of holdings to the largest proportion since the Lehman Bros. collapse of Sept. 2008.

Bill Gross's Total Return Fund now holds 7% of its assets in cash. US government debt and state-related bonds were cut last month from 63% to 51% of assets.

"There are fundamental reasons why inflation expectations have risen to where they are," says Peter Chatwell at Calyon Bank in London.

"Yields need to rise to compensate for higher inflation in the future."

Fixed-income yields rise when bond prices fall. US Treasuries fell Friday on what Chatwell and other analysts called "profit taking", pushing the yield offered on 10-year Treasury debt to 3.50% per year.

Annual inflation on the official Consumer Price measure jumped from zero to 1.8% in November.

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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