Forex – London Gold Market Report by A Ash

Too Much, Too Fast? Gold Jumps to Fresh Record Highs vs. All Currencies Even as Oil & Bond Prices Slip
 
SPOT GOLD PRICES leapt at the London opening on Tuesday, shooting 1.5% higher against the US Dollar to hit all-time record highs above $876 per ounce.
London Gold Market Report
from Adrian Ash
07:45 EST, Tues 8 Jan.
Too Much, Too Fast? Gold Jumps to Fresh Record Highs vs. All Currencies Even as Oil & Bond Prices Slip
SPOT GOLD PRICES leapt at the London opening on Tuesday, shooting 1.5% higher against the US Dollar to hit all-time record highs above $876 per ounce.
Australian investors saw Gold Prices break A$995, another new record high. In Canadian Dollars, gold hit C$876 per ounce, while the Gold Price in Euros jumped 1.3% to a new record of €595 – higher by nearly one-quarter from this time last year.
 
British investors looking to Buy Gold above £442 this morning have now seen the price gain more than 5.2% in the last week alone.

"Spot Gold Prices currently show no weakness," says Christopher Langguth in his technical analysis for Mitsui, the precious metals dealer, setting a near-term objective of $970 per ounce.

"However, gold has already reached or [is] close to most long-term projections and the advance has become very steep," Langguth believes – and new data from the Comex gold futures exchange in New York shows that speculative traders grew their bullish position by 8% in the last week of Dec., often a sign of short-term overheating.

"Gold Prices have been rising too fast," agrees Akira Doi at Daiichi Commodities in Tokyo, "but many people believe that gold will remain supported.

"There are simply too many reasons to hold gold as fears over inflation have been heightened by high oil prices."

Crude oil prices fell back early in London today, slipping below $96 per barrel while US Treasury bond prices also ticked lower, pushing the 10-year yield four basis points higher to 3.87%.

Two-year Treasury bond yields rose six points to 2.79% overnight, but with the most recent reading on price inflation for US consumer reaching 4.29%, returns to bond investors remain sharply negative – and low-to-negative bond yields remain the common denominator linking the Gold Market’s historic bull runs of 1971-1980 and 2001 to date.
 
"Gold’s rise shows investors are nervous," says the Financial Times today. "That is an important message for central banks contemplating interest rate cuts.
 
"The Fed must show it is not prepared to allow inflation to take off," the paper adds, but the market in US interest-rate futures market now puts the chance of the Fed cutting to 3.25% from the current 4.25% by April at one-in-two.
 
Over in India, meanwhile – the world’s hungriest market for physical gold bullion – the Gold Market’s most recent surge has been met with growing scrap-sales from jewelry owners. "If rates stay like this," said one large gold importer in New Delhi to Reuters yesterday, "jewelry demand may not pick up until [the strong gold-buying festival of Akshaya Thrithiya in] April.

Until then, he believes, "necessity-driven demand" for weddings and birthdays will be met via scrap sales. But "India has had a history of being a gold savvy country," PR.Dilip, head of Impetus Wealth Management, told the Hindu Business Line overnight, "with almost 750 tonnes of gold being consumed last year.

"Now we can see that more people are turning towards exchange-traded gold funds," he believes, "as they seem to be a safer option as compared to physical gold."

Dealing volumes in India’s exchange-traded gold funds fell last week, however, dropping by almost one-half from the finish of 2007 despite the surging Gold Price. And just as India’s growing middle-classes still prefer holding physical "investment jewelry" to stock certificates backed by gold, so China’s fast-growing investing classes would rather own metal than paper, too.

"I will not play gold futures," said Lao Wang, an investor in the Shanghai stock market since 1994, to Reuters on Monday.

"Gold is good, elders love it, but futures is another story. I do not want to lose all my money all at once. Futures is a kind of gambling."

Physical gold sales also continue to boom in the Middle East, reported the World Gold Council yesterday, with Gold Sales in Saudi Arabia rising nearly 17% by volume in 2007 for an increase by value of almost one-third.

"The economy of Saudi Arabia, especially after the euphoria of the stock market cooled off, grew in 2007 – and that helped gold demand in the country," said Moaz Barakat, head of the WGC’s Middle East office, to The Peninsula newspaper. Gold demand in the United Arab Emirates rose 12% by volume, he said.
Dubai’s stock market, now standing almost 50% higher from this time last year, was little changed by late afternoon on Tuesday, while on the currency markets the Euro crept back above $1.4700 despite news that retail sales in the 15-nation single currency zone slid by 1.4% in Nov. from the same month in 2006.

The British Pound briefly spiked more than one cent to $1.9840 on news that UK house prices rose 1.3% last month from Nov., but market sentiment towards Sterling has clearly turned, despite the Bank of England’s anti-inflation protests.
 
Private-sector lending grew by 12.8% in Nov. from a year earlier, meaning that the global credit crunch has yet to dent four years of double-digit growth in UK credit creation.
 
Adrian Ash
 
 
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
 
(c) BullionVault 2008
 
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
 
 
 
 

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault ? where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.