Gold News

Gold Jumps with Silver as US Fed's "QE2 Shocker" Undoes 1/2 of Japan's Yen Devaluation

Gold Prices leapt to fresh record highs vs. the Dollar overnight Tues/Weds, as the US currency fell hard after the Federal Reserve's latest policy announcement pointed to fresh "money printing" ahead.

Silver Prices also rose, hitting new 30-year highs at $21.20 an ounce, as world stock markets fell.

Major-economy government bonds rose. The Dollar lost half of the ¥2.5 gains injected last week by the Bank of Japan, which sold its own currency to depress the Yen from 15-year highs.

"The Fed said exactly the opposite of what the market had been expecting," the Platts news service quotes Afshin Nabavi at Swiss refiners MKS today.

"Gold went up more than $15 in less than five minutes."

Repeating its vow to keep interest rates "exceptionally low [for an] extended period" for the US central bank also said it is "prepared to provide additional accommodation if needed to support the economic recovery" – taken as a signal that fresh quantitative easing is due.

"[Gold] continues to track a nice two-month bull channel with parameters at $1255 and $1295," says Russell Browne's latest analysis for Scotia Mocatta clients, repeating his "Elliott Wave" target of $1356.

In Asia today – where gold broke through $1290 in Tokyo trade, but China's Shanghai Gold Exchange was closed for a national holiday – "Long-liquidation was not apparent, despite the much higher prices," says one Hong Kong dealer.

Rising 1.3% vs. the Dollar since the People's Bank widened its "daily trading band" three months ago, the Chinese Yuan still saw gold hit new record highs today, gaining almost one tenth for 2010 to date.

"Gold [has a] close and positive relationship with liquidity and associated inflationary fears," writes Walter de Wet at Standard Bank today.

"The fall in the Dollar, prompted by fears of currency devaluation, has provided an added impetus [to Gold Trading] this morning."

Priced in the Euro, gold actually fell following the US Fed's announcement, pushed down by the single currency's new six-month high above $1.33.

Early Wednesday in London, the Gold Price in Euros slipped towards €31,000 per kilo – its lowest level in almost 3 weeks.

New data meantime showed Industrial Orders across the 16-nation Eurozone shrinking unexpectedly by 2.4% in July from June.

US home-loan applications fell last month, the Mortgage Brokers Association reported.

Retail Sales in Canada, excluding autos, contracted by 0.4% in August from July. Analysts had forecast a 0.5% rise.

"[The Fed has sparked] further unease of what [other] governments will do to weaken their currencies to support flagging economic growth," reckons Credit Agricole's senior currency analyst in London, Robin Bhar.

Tuesday's "subtle change in language" from the US Federal Reserve "pushes the door for QE2 wider," he told Reuters this morning.

Iceland's central bank meantime cut its interest rate back to 6.25% today, while minutes from the Bank of England's latest meeting showed only one UK policy-maker calling for a hike from the current 300-year low of 0.50%.

Former British Airways economist Prof. Andrew Sentance was out-voted by the other eight members, who said they saw an increased risk that "further action would become necessary to stimulate the economy."

Already 20% higher from the start of the year, the Gold Price in Sterling today jumped to £828 an ounce – its highest level since the new record highs set in late June.

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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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