Gold: Only Yen & Aussie Dollar Escape New Record Highs as $100 Oil Crashes into Plunging US Interest Rates
THE PRICE OF PHYSICAL GOLD BULLION gained almost 1% at the London opening on Thursday, taking the metal 3.6% higher from yesterday’s low to a new record high above $948 per ounce.
"The second successive [US crude oil] close above $100 a barrel and a higher-than-expected US inflation outcome were the triggers for a move to a new all-time high," believes John Reade at UBS.
"We believe that many investors have bought and held Gold because of fears of stagflation, coupled perhaps with worries about financial system risk."
Of the world’s G-10 major economies, only investors wanting to Buy Gold in Australian Dollars or Japanese Yen today found the metal trading below a previous all-time high.
"With the move to $949 in gold, we have broken out of the recent consolidation phase and we expect the rally to continue in the short term."
European stock markets also rose sharply early today, gaining almost 1.9% in London after Tokyo’s Nikkei index ended the day 378 points to the good at a two-day high of 13,688.
Tocom gold futures gained 2.4% to a new quarter-century record of ¥3,300 – equal to $948 per ounce – while Japanese platinum contracts rose "limit up" to recover half of Wednesday’s sharp losses.
Silver prices were set just two cents shy of $18 per ounce at this morning’s London Fix, a new 27-year high.
"The momentum is back," says William Kwan, a broker at Phillip Futures in Singapore. "Gold has broken out of the consolidation phase. The potential upside is definitely $1,000 in the first quarter of 2008."
Pointing to jewelry makers in Indonesia and Vietnam, "most of those investors are afraid they won’t have enough precious metals – gold, silver and platinum," he told Reuters earlier, "so they are buying ahead."
Wednesday brought news that consumer-price inflation in the United States rose to 4.3% in January, confirming the fastest three-month rise in the cost of living since the summer of 2006.
Back then, however, the Federal Reserve pegged its key interest rate more than 1.0% above the rate of CPI inflation – a half-decade high. Whereas on last month’s data, the real rate of interest for Dollar holders has now slipped to -1.3%, its worst level in 26 months. (How come Gold Rises When Real Interest Rates Fall? Find out in this Free Gold Report…)
"Policy-makers could pursue a powerfully expansionary policy to all but eliminate the possibility of a significant recession in the year ahead," said William Poole – head of the St.Louis Federal Reserve Bank – in a speech jarring with current Fed policy on Wednesday.
"But doing so would come at the cost and even likelihood of an unacceptable increase in the rate of inflation."
Bloomberg data now shows a 94% chance the Fed will cut another 0.5% off the cost of US Dollars when it meets on March 18th, according to betting on interest rate futures.
This time last week, interest-rate traders put the odds at 70%.
But short-term rates in the actual money market rose sharply this morning, gaining 0.31% to push the Effective Fed Funds rate back above 3.0% per year – the current target level set by the US central bank.
Government bonds fell across Europe and Asia, meantime, sending the yield offered to new buyers of three-year German bunds fully 14 basis points higher as "an investor flight to stocks swept global equities higher" according to Reuters.
Even financial stocks facing a fresh slew of bad news rose strongly, with Standard Chartered – which finally stopped trying to support the failed $7.1bn Whistlejacket investment fund today – gaining 3.1% in London.
Shares in Allianz in Frankfurt gained 2.2% even as its wholly-owned Dresdner banking subsidiary said it will refinance the $19 billion K2 investment vehicle.
In Paris, France, word spread that Societe Generale – the country’s second-largest bank – will not find a takeover bid despite confirming a record fourth-quarter loss of €3.35bn this morning ($4.9bn).
"In the past 24 hours," writes Paul Betts for the Financial Times online, "Deutsche Bank’s Josef Ackermann and Santander’s Emilio Botín dismissed any interest in SocGen. So has Intesa Sanpaolo’s Corrado Passera.
"Even the most likely of all candidates, BNP Paribas, sought to pour cold water on any hostile intentions towards SocGen."
Hit by the world’s biggest "rogue trader" losses to date, SocGen’s stock today slipped just 0.5% at the Paris Bourse in La Defense.
Energy prices slipped 0.5% from last night’s new record highs, meantime, while base metals were mixed.
Soft commodities, however, continued to push higher with Chicago soybean futures set to open above Wednesday’s record close as corn and wheat prices rose once again.