London Gold Market Report – Forex Hound

THE SPOT GOLD MARKET jumped once again early Wednesday, adding 1.5% in Asia to open London above $891 per ounce for US investors.

Physical gold for immediate delivery also touched £450 for British gold buyers, and it broke and then held a record €600 per ounce for European investors.

London Gold Market Report
from Adrian Ash
08:00 EST, Weds 9 Jan.
 
Gold Jumps Once More as Chinese Investors Pile in; "Stagflation Light" Promises Fresh Gains Ahead
 
THE SPOT GOLD MARKET jumped once again early Wednesday, adding 1.5% in Asia to open London above $891 per ounce for US investors.

Physical gold for immediate delivery also touched £450 for British gold buyers, and it broke and then held a record €600 per ounce for European investors.

Tracking back on pre-Euro prices, that’s the highest Gold Price in Europe since the French currency crisis of 1983.

In Asia today, China’s new gold futures market leapt 14% on its debut, breaking through the Shanghai Futures Exchange’s daily price-limit on turnover worth $2.75 billion.

The contract size of these new gold futures was earlier set at 1,000 grams – three times greater than first planned – in a bid to deter smaller investors. But one Shanghai futures brokerage told the People’s Daily this morning that private individuals have made "mounting enquiries" to enter the Gold Market regardless.

The China Securities Journal also reports people queuing up to open brokerage accounts in the east of Zhejiang Province.

Across the East China Sea in Tokyo, the most-active gold futures contract at the Tocom reached its highest value in Japanese Yen since March 1984, while the Nikkei stock-market index fought to recover an initial 1.7% drop after Tuesday’s ugly sell-off on Wall Street, finally managing to end the session 0.5% higher.

US Treasury bond prices dipped for the first time in 10 days overnight, taking the 10-year yield three pips higher to 3.81% as crude oil prices rose almost a dollar to $97.14 per barrel on the threat of an "imminent attack" by militants in Nigeria, the world’s fourth largest oil producer.

Soybean futures rose to a new 34-year high in Asia trade, and corn hit levels last seen in 1997. Copper, nickel, zinc and aluminum also shot higher.

"’Stagflation light’ is a fair description of what the US economy is going to look like for the next quarter or two," says Avery Shenfeld of CIBC World Markets in the Toronto Globe & Mail today. "That creates a very bullish environment for gold.

"You’re getting everything you need – falling interest rates, a weak US Dollar due to the weakness in growth, but also lingering inflation concerns."

Tuesday’s bad news for US consumer stocks – which helped take the Dow to its worst start to the year since 1978 – was mirrored today at the opening in Europe. First Germany’s statistics bureau said retail sales in the world’s third-largest economy fell 3.2% in November from the same month in 2006.

Then in London, Marks & Spencers – the bellwether UK food and clothing store – reporting a 2.2% drop in its Christmas sales.

M&S shares dropped 17% in response, dragging retail stocks lower across Europe and knocking 1% off the blue-chip EuroFirst 300 by lunchtime. The news also sent the British Pound reeling, down to a record low of £0.749 per Euro and a five-month low beneath $1.9600 to the Dollar.

"The news from M&S adds to the flavor that sentiment towards the UK economy is eroding," says Paul Mackel at HSBC. "People are quite happy going short of the Pound ahead of Thursday’s interest rate decision from the Bank of England."

Since this time last year Sterling has now dropped 7.5% of its value against the world’s other major currencies. Measured against the Gold Price in British Pounds, however, Sterling has dropped 12% of its value since the start of this month alone.

But volatility also continues to rise as the Gold Price moves higher, and with "the prospect of $900 gold now only a stone’s throw away," as today’s note from Mitsui in Sydney puts it, "the Gold Market is getting increasingly choppy.

"London has already seen a $10 range this morning."

 
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.