Monday, August 22, 2011

Gold Makes Another Clean Sweep, Touches $1890

London Gold Market Report
from Adrian Ash
Mon, 22 Aug. 2011

Gold Makes Another Clean Sweep, Touches $1890 as Treasury Buyers Look to QE3

THE PRICE OF physical gold rose Monday morning for the thirteenth time in sixteen August trading sessions so far, recording new all-time highs against all major currencies bar the Japanese Yen as London dealing began.

The price of physical gold briefly broke above $1890 per ounce as Asian stock markets closed the day lower again, but European equities then bounced, with London's FTSE-100 index jumping 2% to regain 100 of the 775 points lost so far in August.

Little changed over the previous nine months, the gold price in Australian Dollars has now risen 31% since the start of July.

The price of gold in Swiss Francs – strongest of the world's major currencies during the latest financial crisis and deemed a "safe haven" – has risen by 20% in the last three weeks alone.

"It is hard to imagine a much more bullish environment for gold," says one London dealer in a note.

"ETF buying and other risk aversion have helped push the price to new highs just shy of the $1,900 mark which seems likely to be broken this week."

"If it was just the retail end of the [investor] spectrum that was buying," says the latest Metal Matters from bullion bank Scotia Mocatta, "then that might signal that the end of the rally was in sight

"But the fact that the buying has been broad based suggests sentiment remains strong. Indeed given that no solutions to the debt crises have been found, it seems as though the big picture outlook for gold remains robust...for a considerable time."

"It is difficult to argue that gold is in a bubble," says Marc Ostwald, financial markets strategist at Monument Securities, quoted by EuroMoney magazine, "even if the one-way charge into gold has bubble-like qualities.

"It would require a sharp rise in money rates and bond yields to attract money away from gold."

Major-government bond yields ticked higher early Monday as prices slipped back, nudging 10-year US Treasury returns up to 2.12%.

Ten-year Treasury yields briefly fell below this level in Dec. 2008. US consumer-price inflation was pegged in July at 3.6% annually.

"The market is pricing in another round of large-scale asset purchases [from the Federal Reserve], looking for confirmation possibly as early as [this week's] Jackson Hole symposium," reckons Anshul Pradhan, fixed-income analyst at Barclays in New York.

Fed chairman Ben Bernanke used his Jackson Hole speech in 2010 to announce the US central bank's second-round of quantitative easing. But with 10-year Treasuries already 'pricing in' up to $600 billion of QE3 today, "If the chairman does disappoint, then there should be a reversal in the outperformance of 10-year notes," says Pradham.

Record-low Treasury bond yields "are consistent with near zero growth and inflation," says Citigroup strategist Brett Rose.

"All commodity prices decline during a recession, except gold," says Standard Bank's Walter de Wet in a new report released Monday morning. "We believe this is likely to be the case once again, should we experience a recession.

"Gold has declined substantially in only two recessions – 1980 and 1981. These recessions were led by extremely tight monetary policy and high real interest rates."

Europe's benchmark oil price, Brent crude lost 1% to $107 per barrel on Monday morning, as Libyan rebels entered the capital, Tripoli, and declared the 42-year Gaddafi dictatorship to be finished.

Silver prices briefly touched $44 per ounce – up by 10% from the start of the month, but still 12% off April's three-decade highs.

Meantime in Indian – the world's largest price-consumer market for gold bullion – "The rains have been good so far, so we can expect good demand for [October's] festival season this year," said Prithviraj Kothari, president of the Bombay Bullion Association, to a conference on Saturday.

Indian households' sales of "scrap gold" have fallen even as gold prices reached new record highs, noted another speaker.

"The equity market is volatile and property prices are too high, driving people toward gold as an investment," says Kothari.

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 head of research at BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

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