Gold Recovers One-Third of Week’s Losses as Emerging Economies Scramble to Cap Food-Price Inflation

THE PRICE OF GOLD rose steadily in European trade early Wednesday, adding more than 1% from last night’s New York finish as Asian stock markets closed sharply higher.

European stock markets held flat, however, while crude oil added one dollar to $101.96 per barrel and short-dated US Treasury bonds bounced higher from Tuesday’s sell-off.

THE PRICE OF GOLD rose steadily in European trade early Wednesday, adding more than 1% from last night’s New York finish as Asian stock markets closed sharply higher.

European stock markets held flat, however, while crude oil added one dollar to $101.96 per barrel and short-dated US Treasury bonds bounced higher from Tuesday’s sell-off.

Ten-year yields continued to rise as prices slipped, adding another two basis points to yesterday’s 12-point surge at 3.57%.

"The market seems to believe that most of the bad news relating to credit losses is over," say Manqoba Madinane and Walter de Wet in today’s Gold Market note from Standard Bank in Johannesburg, "[but] it remains to be seen if current Dollar strength and the equity market rebound have long legs.

"Gold Market participants are likely to be cautious ahead of Friday’s non-farm payroll data release in the US. This figure has been a real market-mover over the past few months."

By the Morning Fix in London – set at $893.50 per ounce – physical Gold Bullion prices had recovered more than $18 of the week’s $56 losses as gold dealers in India, Hong Kong and Singapore reported decent sales following Tuesday’s 10-week low.

Indeed, "there’s a shortage of Gold Bars, there’s a supply squeeze at the moment," according to William Kwan at Phillip Futures in Singapore.

"We’ve seen demand from Indonesia, Thailand and some from Vietnam," confirmed another local gold dealer. "We are still offering gold bars at a premium of 40 US cents an ounce, but it may go up to around 75.

"I don’t remember when [the premium] last touched that level."

In India, the world’s hungriest market for physical Gold Bullion, "demand was good yesterday [and] it can rise more if prices fall further," according to a dealer in Pune.

"Demand is good, but it is cautious buying," agreed another trader in New Delhi, also speaking to Reuters India.

Over in Tokyo, where the Nikkei stock index today surged by 4.1%, Japanese gold futures traded for Feb. 2009 rose 1.1% to equal $887 per ounce.

The US Dollar meantime continued to rise on the forex market, pushing the Japanese Yen back to a three-week low and knocking the European single currency back to $1.5535.

The Euro hit a new all-time record of $1.5905 on March 17th.

The Gold Price in Euros reached €571.03 per ounce at today’s Morning Fix here in London, fully 1.3% above Tuesday’s spot-market low.

Today’s level of €562.50 matched almost exactly the peak of May 2006. That "cathedral top" then put a ceiling on the Euro Gold Price until Dec. 2007.

Back in today’s markets the Pound Sterling also rose against the Euro on a raft of consumer borrowing data. For British investors looking to Buy Gold today, Sterling’s bounce capped the price of bullion below £449 per ounce, a little more than 1.1% above yesterday’s ten-week low but 23% off the all-time record of £512 per ounce hit on March 17th.

In the raw materials market today base metals slid yet again while soft commodity prices rose for the first time in a week.

The "panic sell-off" starting in mid-March saw food commodities drop one-quarter of their price. But the UBS-Bloomberg commodity index remains 30% above its level of this time last year, and to fend off the risk of social unrest, emerging economies are now "scrambling" to boost food imports and cap exports, notes the Financial Times today.

Saudi Arabia yesterday slashed its import tariff on wheat by 25%; India banned all rice exports except high-value basmati on Monday; Vietnam is looking to trim food exports by more than 10% in 2008.

Government agents in the Philippines this week raided store-houses suspected of hoarding rice, which has risen in price by one-third on world markets since the start of the year.

"The steps taken are bold," said the deputy chairman of India’s planning commission, Montek Singh Ahluwalia, to reporters today.

"They are not bits and pieces. Inflation will be handled. We will control it."

The Asian Development Bank warned today that inflationary pressures will persist in India for the next two to three months, and the World Bank said on Tuesday that rising food and fuel prices pose a bigger threat to East Asian economies than the ongoing US banking crisis.

Average inflation in Ukraine – a top 10 exporter of wheat – will hit 20-22% this year according to a new report from the International Monetary Fund.

Industrial output prices in Europe rose at their fastest pace in 18 months in Feb., the Eurostat agency said Wednesday morning, growing by 5.3% from Jan.’s upwardly revised rate of 5.0% in the 15-nation single currency zone.

 
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

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.