Gold News

Gold "Freight Train" Hits 21st Record in 23 Days; 20% Drop "Wouldn't Violate" Bull Run

The price of Gold raced to new all-time highs overnight Wednesday, rising 1.3% from yesterday's peak to hit $1217 an ounce at the start of London trade.

The Gold Price in Euros broke above €800 an ounce for the first time ever, and broke new records against all other major world currencies bar the Aussie Dollar and Japanese Yen.

"Like a freight train in motion, gold cannot be stopped," says one Hong Kong dealer.

"Relentless," says a London analyst.

Silver, platinum and palladium followed gold higher in Asian dealing, recording new 2009 peaks before slipping back as gold dipped in London.

The US Dollar bounced, European stock markets ticked lower, and crude oil slipped back below $78 per barrel.

"We must watch out for bubbles forming on certain assets, and be careful in those areas," said a Chinese central bank policy-maker today when asked whether the People's Bank will increase its gold allocation.

"We must keep in mind the long-term effects when considering what to use as our reserves," vice-governor Hu Xiaolian told reporters after a senior colleague – State Council investment supervisor Ji Xiaonan – said he'd advised Beijing to buy 10,000 tonnes of gold by 2020.

"If China were to lift their gold reserves to 5,000 tonnes, which is equivalent to about two years of global [mining] production, that shift in demand would boost the Gold Price to around $2000 based on our models," writes David Rosenberg, formerly chief economist at Merrill Lynch, now at Gluskin Sheff.

A move to 10,000 tonnes – overtaking the United States' 75-year dominance of central-bank hoards – would take the Gold Price above to $2600 on his calculations.

"Make no mistake, we are gold bulls," Rosenberg advised clients on Tuesday. "[But] we could get a meaningful gold correction at any time. The 200-day moving average is $970 an ounce, which means we could get as much as a 20% pullback and no fundamental trend-line would be violated.

"Anything that could spark a countertrend rally in the US Dollar – our principal near-term concern – would put gold at a much better price point for investors."

Wednesday's US opening brings last month's home-loans data, plus early guidance on Friday's much-awaited jobless numbers, courtesy of the private-sector ADP Payroll report.

Thursday will see Ben Bernanke seek confirmation of his second 5-year term as Federal Reserve chairman at a Senate hearing.

"In the recent crisis, actions by the Federal Reserve and the Treasury raised questions about central bank independence and proper accountability for use of taxpayer funds," says Richard Shelby, the most senior Republican senator on the committee.

Looking at Europe's state-aided banks, "We are sowing the seeds for the next crisis," says David Lascelles at London's Centre for the Study of Financial Innovation, "making banks much bigger."

Fifteen European banks now hold assets worth more than their domestic nation's economy, reports Bloomberg, up from 10 banks three years ago.

"It really goes against the currents of the time," says Lascelles.

Meantime at this morning's Gold Fix in London – used as a clearing and reference price by wholesale dealers – the Dollar-price of bullion hit its 21st record in 23 sessions.

The US Dollar bounced from near 2009 lows on the forex market, rising against the Euro and Japanese Yen as a tepid gain in Asian stock markets gave way to 0.5% losses across Europe.

Crude oil slipped back below $78 per barrel, while German Bunds and UK gilts both fell, driving 10-year yields up to 3.19% and 3.59% respectively.

Wholesale prices in the 350-million citizen Eurozone rose twice-as-fast last month as analysts expected, new data showed Wednesday morning.

The UK's PMI Construction Index picked up but signaled weakness for the 18th month running.

"The risk of deflation isn't averted yet," said Swiss National Bank president Jean-Pierre Roth to reporters earlier this week.

Confirming that the SNB has actively sold Francs against the Euro to depress their value, "We will stick to our strategy to act decidedly against an appreciation of the Swiss Franc," Roth said.

The Bank of Japan is "considering options" in its fight to depress the Yen from a 14-year high and reverse 8 months of consumer-price deflation, policy-maker Miyako Suda told the press on Wednesday.

Here in London, the Ernst & Young Item Club said the UK's fiscal deficit is likely to top government forecasts by more than 8% in 2009/10, swelling it towards one-sixth of total economic output at £190 billion ($315bn).

So far since March, quantitative easing by the Bank of England has bought £181bn of government bonds with newly created money.

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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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