Gold News

Gold ends London unchanged as Oil Surges; Stocks Drop on "Carry Trade" Panic, Turkish-Iraq Threat

Gold Prices hit a new 27-year high for the fourth session running early on Tuesday, breaking above $767 per ounce just ahead of the London open before slipping back to end the European session at $760 – unchanged from Monday night's US close.

The initial surge in the Gold Market came even as the US Dollar rose against the Euro. The Japanese Yen rose faster still, gaining more than 1% versus the single currency inside 60 minutes to hit a one-week high.

Asian and European stock markets fell hard, meanwhile, knocking nearly 1.3% off the Nikkei in Tokyo and taking Europe's top 300 shares almost 0.9% lower on average by lunchtime. They ended more than 0.7% lower as Wall Street stocks dropped 0.4% by midday in New York.

Credit-default swaps, the insurance contracts that bond investors bid up when they believe the risk of non-payment is rising, jumped higher in early European trade. The cost of buying a CDS on debt issued by Nokia, the Finnish telecoms giant, rose by nearly one-half after its Swedish competitor, Eriksson, reported a 39% drop in quarterly earnings. Shares in Eriksson lost nearly 24% for the day.

Amid this "flight from risk" – last seen when global credit markets froze in early August – crude oil prices rose together with the Gold Market for the fourth session running, touching fresh record highs above $87.90 per barrel of WTI, the benchmark US fuel.

"It is difficult to find any bearish factors now," reckons Tetsu Emori, a fund manager at Astmax Futures in Tokyo.

"There's the Iraq-Turkey issue, a weak Dollar, and inventory levels for US heating oil are much lower than a year ago."

In Ankara this morning, "I sincerely wish that this motion will never be applied," said the Turkish prime minister Tayyip Erdogan after asking parliament for permission to send troops across the Iraqi border in pursuit of some 3,000 Kurdish rebels.

"We will act at the right time and under the right conditions," he added. The motion will be debated on Wednesday. Baghdad today called for "urgent talks" to forestall the action.

Back in the financial markets, the high-yielding Aussie and New Zealand Dollars sank by 200 point against the Yen in a matter of minutes as forex traders frantically unwound their "carry trade" positions.

Wheat futures fell for the third day running, and the base metals all slipped back, led by copper and zinc. Lead fell sharply from Monday's new all-time high.

Gold Priced in Euros shot to €540 per ounce before slipping back towards last night's close at €535. For British investors wanting to Buy Gold Today, the metal also hit a new 17-month high, trading above £376 per ounce – within 1.2% of the all-time top recorded in May 2006.

On the economic front, official data reported in the UK showed a slight drop to 1.8% in consumer-price inflation during Sept., down from Aug.'s figure and below the Bank of England's target at 2.0%.

Germany's CPI data, on the other hand, showed the highest year-on-year rate of change for 24 months at 2.4% in Sept. The much-watched ZEW confidence report, meantime, sank to -18.1 for this month, beating forecasts of a slump in economic expectations to -22.0.

On Wall Street, US stock futures pointed down ahead of the open – when Intel, Yahoo and IBM will lead the day's flood of third-quarter results – following comments overnight from Ben Bernanke, head of the Federal Reserve, that tried to warn of both inflationary risks and an economic slowdown ahead.

"The further contraction in housing is likely to be a significant drag on growth in the current quarter and through early next year," Bernanke told the Economic Club of New York.

Claiming that he would reverse the Fed's shock 0.5% cut to US interest rates if the economic data warranted it, Bernanke then said the Federal Reserve "will act as needed to support efficient market functioning and to foster sustainable economic growth and price stability."

This clear promise of further rate-cuts-to-come pushed US Treasury bond prices higher, taking 10-year yields below 4.65%.

But fresh data on Tuesday showed foreign investors fleeing US assets during the "credit crunch" of August, withdrawing nearly $70 billion from US stocks and bonds after putting a surprise $60bn into US securities the previous month.

Foreign governments, the largest holders of US government Treasury debt, withdrew a net $29.7 billion.

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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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