Gold News

Gold Drops from 1-Week High as Dollar Rallies from New Lows; Bond Buyers Don't Care About Price or Yield

Strong buying late in the late Asian session on Friday drove Gold Prices to a series of one-week highs as the US Dollar sank to new all-time lows vs. the Euro before suddenly putting in its hardest rally in a month.

Peaking just below $816 per ounce, the Gold Market slipped back 1% to bounce off $807.50 at the start of London trade. The European single currency sank more than 1.5¢ from its new lifetime high of $1.4967.

"Liquidity is quite thin in Asia today," said a dealer at Standard Bank to Reuters, but "there are bargain hunters at the lower end" countered another.

The 1.5% rally in Gold Prices broke Thursday's flat range around $803 per ounce, seen when the US markets were closed for Thanksgiving. It came despite Tokyo closing for today's Labor Thanksgiving celebration in Japan.

"The funds will be interested in joining the momentum on the buying side," said William Kwan, a dealer at Phillip Futures Pte Ltd in Singapore.

"There's active buying spurred by the Euro hitting new highs. Maybe we can see another movement upward."

Investment funds led by Blackrock Inc. certainly continue to hold large positions – if not in gold, then at least in the StreetTracks GLD fund. Owned by Merrill Lynch, Blackrock grew its Gold ETF holdings to almost 5% of GLD's outstanding shares in the third quarter according to Bloomberg analysis.

But Gold Investment by US or even European funds can't explain this morning's sharp move – a pattern of early buying that was also common during gold's 12-week run to near record highs at the start of this month.

Indeed, Credit Suisse – the largest institutional Gold ETF investor in the three months to June – cut its position in StreetTracks GLD to 1.4% of the outstanding shares.

"We have to have a certain amount of liquidity that is similar to cash," says Blackrock's manager, Graham Birch, "and that's what these ETFs do for us.

"If the Gold Price goes up, so much the better," he added – and is it possible that other, even larger investment funds based in Asia and the Middle East are also choosing gold ownership – both for liquidity and as a store of value?

"We need a multilateral policy for dealing with currency exchange rates," said Peter Bofinger, one of the German government's 'Five Wise Men' in an interview with Der Spiegel this week.

"In the current, weak-Dollar situation, China, South Korea, Japan, Russia and other countries that have huge Dollar reserves would have to be brought on board. A treaty should be signed with their central banks so that they don't dump massive amounts of Dollars onto the market.

"A similar treaty already governs the Gold Market in Europe."

Back in today's early action, and European stock markets were also volatile, Friday, adding 0.7% in the first hour of London trade. The MSCI index of Asia-Pacific stocks was little changed, but it completed its fourth losing week on the run.

More dramatic still, however, was the ongoing surge in government bond prices worldwide.

Despite a strong increase in Germany's import-price inflation – reported today at 2.3% in Oct. compared with Sept.'s 1.3% rate – investors have now pushed two-year Bund yields down to a 13-month low.

Japanese 10-year yields have sunk to a two-year low, while US Treasury bonds have now risen so fast, the 10-year yield pays less than 4% and the two-year will pay less than 3% per annum to new buyers today.

"The Yen bond market is one of the safer places to put your money," reckons Yuuki Sakurai at the Fukoku Mutual Life Insurance Co. in Tokyo. He helps manages some $41.5 billion-worth of assets.

"It's not about price or yield anymore," Yuuki-san adds.

But with crude oil and global food prices continuing to threaten further steep increases – even as the futures market puts 90% of its money on lower interest rates when the Federal Reserve meets on Dec. 11th – both the price and yield of fixed-income assets may soon come to seem awfully important.

Two-year US Treasuries have now enjoyed their longest price-rally in five years. But as a result, they now pay less than even the official rate of Consumer Price Inflation. It rose to 3.5% last month, but many respected economists put the true figure – with exclusions and mathematical trickery removed – at two or even three times that rate.

What goes up when interest rates sink below zero? To Get the Facts about Gold – plus a gram of Free Gold Stored Offshore in Zurich today – click through and Register with BullionVault now...

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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