Gold News

Gold Jumps to New Record Highs as the "Only Thing that Sparkles" on US Data Deluge

Spot Gold Prices leapt to a new record high above $990 per ounce late in London on Wednesday, proving the volatility in gold that's only grown greater as the bull market's gone higher.

The move came as the ADP Employment Report for US jobs February showed a drop of 23,000 vs. 15,000 growth expected.

The data-fest then continued with Mortgage Applications for the week-ending Feb. 29th (up 3.0%), factory orders (down 2.5%) and finally the Federal Reserve's Beige Book of economic stats and analysis, due at 14:00 EST.

"Gold is, in principle, the Dollar's counterpart," writes Arne Lohmann Rasmussen, senior analyst in Copenhagen for Danske Bank in the group's latest Commodities Monthly.

"[So] the US central bank signaling lower rates...and explicitly warning that a number of smaller US banks risk going out of business, adds up to just about the best recommendation gold can have.

"We expect Gold Prices will break through the magical $1,000 per ounce mark, and that the peak may be as high as $1,200 in 2008."

Rasmussen also expects silver prices to continue rising, "but not to the same extent" because gold remains the world's No.1 monetary metal.

"In a tumultuous situation such as the present, the only thing that sparkles for investors is Gold."

Ahead of Thursday's interest-rate decision from the European Central Bank in Frankfurt, the European single currency had earlier dipped towards a one-week low beneath $1.5150 after José Manuel Barroso – the European Commission president – said the surging currency "is a matter of concern in some sectors of our economy.

"It is now at a level that raises some concerns."

On Monday night the finance ministers of all 15 Eurozone nations issued a joint saying they "are concerned about exchange rate moves...We don't think the recent moves are reflecting economic fundamentals."

But George Alogoskoufis, the Greek finance minister, denied this morning that his political colleagues have discussed "applying pressure" on the ECB to cut rates or intervene in the forex markets, and the Euro jumped above $1.5300 on Wednesday's slew of poor US data.

The British Pound fell more sharply this morning, dropping to a six-session low of $1.9725 ahead of tomorrow's interest-rate vote at the Bank of England on news that UK consumer confidence fell last month, even as High Street prices rose unexpectedly.

US crude oil futures rose back above $103 per barrel as Opec daid it won't increase output, while base metals fell and soft commodities also turned higher.

European stock markets rose 1.5% on average helping push British gilt yields higher as bond prices fell. That move was outpaced by German bunds, however, which fell sharply across the board after the PMI services report for Feb. showed faster-than-expected growth in Europe's largest economy.

The Dax index of German stocks, currently 19% below the start of the year, added 1.5% as two-year bund yields rose four basis points to 3.24% – more than twice the rate offered by comparable "safe haven" US Treasury bonds, bouyed this morning by Ben Bernanke calling for US mortgage lenders to start writing off their sub-prime loans.

"A recent estimate based on subprime [US] mortgages foreclosed in the fourth quarter of 2007 indicated that total losses exceeded 50% of the principal balance," said Federal Reserve chairman Ben Bernanke at the Independent Community Bankers convention in Orlando, Florida yesterday.

"Legal, sales, and maintenance expenses alone amounting to more than 10% of principal," he went on, before urging mortgage lenders to consider that when a mortgage is "under water" – and suffering the negative equity of outweighing the property's market value – "a reduction in principal may increase the expected payoff by reducing the risk of default and foreclosure."

Meantime in China, in contrast, prime minister Wen Jiabao today told the National People's Congress in Beijing that excessive growth and soaring commodity-price inflation are now his dominant concerns.

"Financial controls need to be strengthened, and the excessively fast growth in money supply and lending should be curbed," Wen told the 3,000 politicians gathered together for his two-hour speech.

The Chinese central bank is now expected to hike its key lending rates for the seventh time in a year in a bid to cap inflation in the cost of living at 4.8%. The People's Bank of China also wants to curb growth in the nation's money supply at "only" 15% per year, down from the current 18% plus.

"Super-high oil, agriculturals and industrial metals will keep headline inflation risks to the upside," says John Reade, head of precious metals at UBS. "Growth is noticeably slowing and banks' balance sheet worries are unlikely to disappear soon.

Raising his near-term targets for the Gold Price to $1,025 per ounce by early April, Reade repeats his view that "fundamental support for gold lies between $700 and $750...Yet gold stubbornly refuses to correct despite occasional periods of Dollar strength, crude softness and the waxing and waning of risk appetite.

"This is not a table-banging recommendation to Buy Gold [but] the balance of arguments favors a move to the upside."

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Adrian Ash

Adrian Ash, BullionVault Gold News

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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