Gold News

"Gravity Defying" Spot Gold Hits Fresh USD High as Dollar Sinks, But Gold Investment Flows Still "Chicken Feed"

Spot Gold hit yet another new Dollar high in early trading on Thursday, touching $1364 an ounce as the US currency slumped to fresh 15-and-a-half year lows against the Japanese Yen, and world stock markets also fell.

The Euro and British Pound both neared 8-month highs vs. the Dollar after their central banks failed to cut rates or expand their "asset purchase" quantitative easing at today's monthly meetings.

Crude oil ticked higher to $83.65 per barrel. Silver Bullion rose to $23.50 in wholesale London dealing.

"Getting to a much higher price for gold is not quite the leap of imagination that it seems, adjusting for inflation," says Harvard economist Kenneth Rogoff.

"Gravity defying!" gasps a Hong Kong dealer in a note. "All 4 [precious] metals were heading north and sellers disappeared" in Asian trade.

"The gold chart looks to be entering the foothills of the parabola," reckons the Financial Times' Global Market View blog.

But rising 8.2% against the Dollar from this time a month ago, the Gold Price rose faster still – month-on-month – in the spring and autumn of 1968, late 1970, summer 1971, the first-halves of both 1972 and 1973, winter '73-74, the autumns of 1974, '75 and '76, spring and autumn 1977, and then pretty much non-stop through 1978 and '79.

Gold's current bull market saw stronger price-appreciation in Feb. 2000, May 2001, Dec. 2002, the springs of 2003, '04 and '05, Dec. '05 straight through to July '06, the last quarter of 2007, early and late 2008, early in 2009, and again in Dec. last year.

"Through the end of July," says the Wall Street Journal, "[US] investors poured $22 billion into emerging markets mutual funds and a remarkable $155bn into bond funds.

"Compared to these figures, the amount invested into gold [in the United States] is chickenfeed" – estimated by journalist Brett Arends to net-out at $2.7bn for the first six months of the year.

Online "Gold Price" searches have meantime risen sharply in the last month, according to Google Trends data, but they remain well below the global English-speaking peaks of May 2010 and Nov. 2009.

Web searches for "Buy Gold" are running at barely one-third the peak of late 2008, says Google – just after Lehman Brothers collapsed, and when gold's month-on-month appreciation hit 15.9%, almost twice its current rate of gain.

Across all those days since 1968 when gold's month-on-month appreciation matched or exceeded its current pace, the average 22-day gain in Dollars was 14.7% according to BullionVault analysis today.

"[Gold] is still very overbought and needs a correction or consolidation to get back from the overbought condition," says Phil Smith at Reuters Technical in Beijing once again today.

"I love gold [but] this market is long overdue for a near-term pullback," says wealth-manager Gluskin Sheff's chief economist David Rosenberg.

On the monetary policy front today, neither the Bank of England or European Central Bank made any change to their record-low interest rates or outstanding "asset purchase" schemes.

Confronted with the weakest Dollar/Yen exchange rate since Easter 1995 at ¥82.24 today, Tokyo's deputy finance minister Mitsuru Sakurai said this morning that the Bank of Japan alone cannot reverse the Japanese currency's rise – implying that fiscal stimulus is set to follow the central bank's return to quantitative easing and forex intervention.

Priced in Yen, Gold Bullion spiked on Thursday to its strongest level since late June above ¥3,600 per gram.

The Gold Price in Euros also rose, adding 1.5% from last week's finish but holding little changed from one, two or three months ago.

Spot Gold priced in Sterling meanwhile came within £15 of its record high at £870 per ounce, recording an AM London Gold Fix of £853.10.

Trading almost 10% higher for 2010-to-date, that level in Sterling gold was last seen one day after June's all-time peak.

Equity holders in London-listed gold miner Petropavlovsk, however, saw their stock slump nearly 7% at the start of Thursday's trade, after a site visit by 25 financiers and analysts reportedly found "only two large excavators on site" at its biggest operation in Russia, confirming what the firm had in August called a "very challenging" outlook for meeting its gold-output targets.

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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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