Gold News

Gold Gains as Stocks Stall, Bond Yields Turn Negative; Gold Mining Blocked "Without Appeal" at Europe's No.1 Deposit

Gold rose steadily throughout the early London session on Wednesday, reaching a one-week high above $792 per ounce as strong gains in Asian equities' trading faded in Europe.

As the Wall Street open drew near, the FTSE100 index stood 0.3% higher, while the Gold Price in Sterling stood almost 3% higher from Tuesday's low, trading at £534.

The Euro Gold Price broke up to €612 an ounce, its best level so far this week, while the single currency slipped back from a 10-session high vs. the Dollar above $1.3000.

"Although banks and brokers globally are now well capitalized," says Walter de Wet in his gold note for Standard Bank in Johannesburg today, "with total capital raised exceeding total write-downs by $41bn, we doubt that credit fears have subsided for good."

Today's Telegraph newspaper reports that UK banks – now part-nationalized by the socialist Labour government – will need fresh tax-payer funds if they are to deliver both greater lending to households and business as well as improved "core capital" ratios, as demanded by discredited City watchdog the Financial Services Authority (FSA).

The Financial Times says UK chancellor Alistair Darling may extend tax-funded guarantees to business loans and credit in a bid to revive corporate lending. But "banks are being asked to lend significantly more without fully pricing in the risks," says Simon Ward, economist at the ailing New Star investment group.

"That puts their capital positions in jeopardy and may mean they need a further capital injection in a year or two."

Across the Atlantic in Washington, a Congressional vote is now widely expected on a $15 billion rescue of the "Big Three" US car makers.

Global auto sales are predicted to end 2009 more than 8% below last year's levels according to new research from the Global Insight consultancy.

A report in the Wall Street Journal says insurance giant American International Group (AIG) owes $10 billion on failed trades that are not covered by the US government's $150bn bail-out.

World mining megalith Rio Tinto said today it will slash jobs by more than one-in-eight as demand for base metals collapses.

November saw China record its first year-on-year drop in exports – down 17% from the same month in 2007 – for the first time since 2001, new figures show.

Yesterday the yield paid to buyers of 3-month US Treasury bonds turned negative as "safe haven" prices surged yet again, offering a 68-year low of minus 0.01%.

"The futures market is pricing in a 98% probability of 75 basis-points cut by the Fed next Tuesday to 0.25%," continues De Wet. "We believe other central banks will follow."

But while Negative Real Interest Rates Drive Investors to Gold, low crude oil prices – holding below $44 per barrel on Wednesday – offer "little support.

"In fact," says De Wet, "crude oil might test yet lower levels towards year-end."

Gold Futures traded in Tokyo meantime rose 1.8% today, even as the Japanese Yen reversed an early dip on the currency market.

The Nikkei stock index added 3.5%, reaching its best close in three week, despite news of a shocking fall in machinery orders (down 4.4% in Oct. from Sept.) and a sharp decline in corporate goods prices (down 1.4% month-on-month).

"The precious metals are creeping higher," says the precious metals team at Mitsui in London, "but from a technical perspective we are in the middle of a consolidation phase.

"Gold is range-bound between $740-830."

On the other side of the trade, meantime, shares in Canadian Gold Mining firm Gabriel Resources fell to an all-time low on Tuesday – down by four-fifths since Jan. '07 – after a Romanian court cancelled a key license at its much-delayed Rosia Montana project.

Scarred by streams of toxic run-off since it was first mined in Roman times, the "Red Mountain" – Europe's largest gold deposit – is estimated to hold 14.6 million ounces of gold.

The high-profile blocking campaign – part-funded by Hungarian hedge-fund legend George Soros and fronted by English actress Vanessa Redgrave – yesterday won the annulment of an "archeological discharge certificate", without which Gabriel cannot disturb the historic site.

The court's decision "is final, is not appealable" said the judge.

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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