Gold News

UK, Euro & Yen Gold Within 3% of Record Highs as France Slams "Monetary Disorder", Tokyo Moves to Devalue

Gold Prices drifted $10 lower to $1130 an ounce in Asian and London trade on Thursday, holding 3% better for the week so far as world stock markets also fell.

Crude oil slipped back from new 15-month highs above $83 per barrel. US Treasury bonds fell but the Dollar rose on the forex market.

"We expect gold to continue to do well," says Jim Lennon, head of global commodities research at Australia's Macquarie Bank, "particularly since we expect the US Dollar to continue to weaken.

"We are not as bullish as $1500, but certainly we think $1300-1400 is entirely possible."

"The monetary disorder in the world has become unacceptable," said French president Sarkozy at a Paris conference entitled 'New World, New Capitalism' today.

"There cannot be financial, economic and social order until we put an end to it."

Announcing that France will make "le désordre monétaire" a key issue when it takes the G8 and G20 presidencies in 2011, "European companies will not gain competitiveness when the Dollar is losing 50% of its value," he went on.

The president had already evoked "monetary disparities" in a speech on Wednesday, Le Figaro reports, saying that he wants to make this "considerable problem...the center of international debate."

"It would be nice if the Yen weakened a bit more," said Tokyo's new finance minister, deputy prime minister Naoto Kan (63) today.

Previously eager to cap Japanese bond issuance for 2010 at the equivalent of $475bn, Kan replaces Hirohisa Fujii (77) who resigned on Wednesday after issuing a record budget costing $1 trillion.

"Many businesses say it is appropriate for the Dollar to be around ¥95 for trade," Kan said this morning. "So we must work with the Bank of Japan to bring it to appropriate levels."

The Yen fell to a 17-week low on Thursday of ¥93.20 per Dollar. Tokyo Gold Futures rose to a one-month high of ¥3397 per gram, less than 3% off early Dec.'s 27-year highs.

Japan last intervened in the currency markets in 2003-04, selling ¥35 trillion of its own currency ($318bn) to try and depress its value, and buying $134bn in US Dollars during the last 3 months of the program alone.

Across the Sea of Japan today, in contrast, the People's Bank of China surprised bond investors by raising the yield paid on short-term bonds for the first time since Sept.

The PBoC also said it will drain a net CNY137 billion ($20bn) from China's money markets, the biggest weekly withdrawal in four months.

"[Today's news] suggests they are moving to withdraw some of this very rapid rise in liquidity," said Westpac's chief Asian strategist from Singapore. "But it is very hard to describe this as a tightening in my view."

"We don't read much into this," agreed a Deutsche Bank analyst in Hong Kong, also speaking to Reuters.

"[China's] monetary accommodation will remain in place."

Platinum-group metals fell back from new 16-month highs, however, while stocks in Shanghai & Shenzen fell 1.9% on Thursday.

Chinese copper futures lost 5%, pulling London prices off their best level since before Lehman Brothers collapsed in Sept. 2008.

Here in London, the Bank of England voted to keep its key interest rate at 0.5% – barely one-fourth the current rate of consumer-price inflation, and negative by 2.2% annually on the older, more trusted RPIX measure of living expenses.

Home-loan giant Halifax – part of the bankrupt HBOS group which was taken over by Lloyds TSB in late 2008 – meantime said on Thursday that UK house prices ended Dec. 1.1% higher for 2009, marking the first year-on-year rise in 21 months.

UK car sales fell last year to 1995 levels beneath 2 million units, the Society of Motor Manufacturers and Traders announced, despite the government's £400 million ($640m) cash-for-clunkers incentives, due to expire in Feb.

"There's a chance of a hung parliament" at the next UK election – which must be called before June – notes Steve Barrow at Standard Bank today.

"The last time we had one of those, the Pound was really pulled through the wringer...If we see the polls [for Labour vs. Conservative votes] close up ahead of the election, Sterling could really take it on the chin."

Thursday morning saw the British Pound dip below $1.5900 for the first time in a week, while UK investors holding or Buying Gold saw it rise 5% from last year's finish to hit the highest price since Dec. 4th – the day after its record peak of £735 – trading above £714 per ounce.

Euro Gold Prices also came within 3% of last month's record peak, holding near €790 an ounce after Eurozone Retail Sales showed a sharp decline for Nov. and consumer confidence fell for Dec.

Iceland was meantime barred from $2.1 billion in aid from the International Monetary Fund (IMF) after the president vetoed repaying UK and Dutch depositors hit by the Nordic nation's banking collapse.

"The reaction of the international community has been very harsh, and [president Olafur Grimsson's] decision is already causing us severe economic difficulties," says economy minister Gylfi Magnusson.

"However, there's no immediate solution available at the moment. There's nothing that we are working towards behind the scenes."

The president's veto led Fitch Ratings to downgrade Iceland's government bonds to "junk" status. Some $5.6bn of foreign cash is thought to be locked in Iceland by exchange controls imposed in late 2008 and now supported by 70% of the population according to a poll this week.

The Krona has lost some 75% of its value vs. the Euro since the global financial crisis began.

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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.

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