Gold News

Gold Ends the Week 2% Up as Stock Markets Slump, Bonds Surge on Bernanke's "Uncertainty"

Gold Prices rose into the London close on Friday, ending the week 2% higher at $765 per ounce as European and US stock markets fell sharply, pulled lower by poor earnings reports.

The Gold Market had earlier dipped after touching new 27-year highs above $771. By the PM Fix at 3pm in London it hit $763 on what one analyst called "profit-taking ahead of the weekend."

Rallying into the close in London – center of the world's physical gold bullion dealing – gold then completed its eighth weekly gain since mid-August.

"In the 80s and 90s," notes Phillip Klapwijk of the GFMS consultancy in an interview with Thomson, "the reason gold was so weak was because mine production essentially doubled.

"At the moment, the fact that production growth is zero has been a positive factor in the price."

Commenting on forecasts that gold sales by European central banks may miss their agreed 500-tonne quota by one third over the next year, "if central bank sales are reduced to very low levels that would undoubtedly underpin the Gold Price too," he adds.

Over on the currency markets, the Euro also pulled back on Friday, dropping from new record highs above $1.4300 as the G7 meeting of leading finance ministers began in Washington.

Due to press China for a revaluation of the Yuan, the G7 summit is not expected to address the US Dollar dropping one-fifth of its value over the last two years.

Gold Priced in Euros ended London trade at €536.50 per ounce, more than 1.5% higher from Friday last week. Gold also hit a new 17-month high versus the British Pound earlier in the session.

London's FTSE100 stock index, on the other hand, today dropped 85 points to stand 3% lower for the week as Matt Ridley – the much-criticized chairman of Northern Rock, the over-geared mortgage lender hit with a run by anxious savers in Sept. – finally resigned.

The 300 largest stocks in Europe shed 3.2% from last Friday's close on average. Wall Street stocks moved into the afternoon session more than 1.2% down for the day.

"Uncertainty about the effect of monetary policy on the economy may imply that policy should respond more cautiously to shocks than would be the case if this uncertainty did not exist," said Ben Bernanke, chairman of the US Federal Reserve, in a speech today.

Implying that the Fed may not cut US interest rates when it meets on Oct. 31st, however, Dr.Bernanke failed to dent the strongest rally in Treasury bond prices since 2002.
Two-year notes rose so fast, yields fell to 3.82%, down nearly half-a-per cent for the week at their lowest level since Sept. 2005.

European government bonds also rose strongly, pushing the yield on 10-year German bunds down to 4.22% on Friday, its biggest one-day decline in three months.

Uncertainty about the economy "is a pervasive feature of monetary policy making," continued Fed chairman Ben Bernanke in his speech today. But right now, bond investors across the world reckon they can at least second-guess his response to the fast-weakening US outlook.

Lower interest rates don't square with record-high oil prices, however, which surged above $90 per barrel on Friday.

If you'd like to defend a portion of your wealth from the resulting loss of purchasing power – now hitting all major currencies worldwide – you might like to consider a position in gold.

To learn more about the safest, most secure and low-cost route to Gold Bullion Investment now available to private investors like you, click through and visit 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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