Gold Ticks Higher as Chinese Savers Hit by Negative Interest Rates
Commodities / Gold and Silver 2010 Mar 11, 2010 - 06:11 AM GMTBy: Adrian_Ash
THE PRICE OF WHOLESALE gold bullion ticked higher early Thursday for Dollar investors, but slipped further for Sterling and Euro buyers as world stock markets again held flat together with commodities.
Government bonds fell, pushing the yield offered by 10-year UK gilts up to a 2-week high of 4.14%.
Ten-year US Treasuries offered 3.74% p.a., more than three-and-half percentage points above the yield offered by short-term debt.
"With a US rate hike likely within the next six months, gold may be in for a tough time if it does not find some direction shortly," reckons one London dealer in a note.
"There are lot of buy orders below $1100," counters Pradeep Unni, senior analyst at Richcomm Global Services in Dubai, speaking to Reuters.
"If we don't find any clarity with respect to Greece and neighboring nations, gold will continue to fight bearish pressure."
Greek public services were once again closed by a national strike on Thursday. Typically moving together against the Dollar, gold and the Euro in fact split apart when the Greek budget crisis first broke at the start of Feb.
Initially seeing Dollar-gold prices rise while the Euro/Dollar exchange rate fell, gold now stands flat from the start of March, while the Euro has added 2¢ to $1.3650.
On a rolling one-month basis, the daily correlation of gold and the Euro – averaging a strong +0.51 over the last decade – fell this week to minus 0.35, its most negative reading since March 2009.
"Gold priced in Euros and Sterling reached record high levels [last week], suggesting the market is worried about falling currency values," notes the March Metal Matters report from bullion bank Scotia Mocatta.
"Funds and ETF investors have started to buy into the price rebound, which suggests another significant up leg could be starting.
"Given the latest fears in the market are about sovereign debt, it seems as though gold prices could have further to climb."
Today in China – a close second to India as the world's largest private buyer of physical gold – new data today showed consumer-price inflation jumping in Feb. as food prices leapt more than 6%.
"A growing number of households will realize their deposits in the banking system are losing purchasing power," says Deutsche Bank's chief China economist, Jun Ma, "because the real interest rate is now negative."
Chinese real interest rates – accounting for inflation – were last below zero in late 2006.
Real US interest rates sank below zero for the third time in 7 years last November. Cash savers in the UK have lost real purchasing power across each of the five, ten and 15 years according to data from the Investment Management Association.
"Confidence in not only the Dollar but other currencies is declining, and people are looking for a place to put their money," said Rob McEwen, chairman and CEO of US Gold – and founder of world No.3 gold-miner Goldcorp – speaking this week to Business News Network at the PDAC mining conference in Toronto.
Repeating his forecast of $2000 gold by the end of 2010 – and $5000 an ounce by the bull market's peak – "It's just gonna happen," McEwen laughed.
"You have governments around the world that are printing money. The debt levels are going up...Gold mining supply adds about 1% per year. The money supply is expanding by greater than 8% per year right now."
Asked about the likelihood of governments worldwide reining in spending and money-creation, "Good luck to them!" McEwen said.
"If interest rates rise, our prospects plummet," writes London Times columnist and economic consultant Anatole Kaletsky today.
"Fighting inflation used to be the touchstone of economic policy. But this dusty old orthodoxy must go. [UK] interest rates will have to remain low...certainly no higher than 1-2%...not just for the rest of this year, but until 2014 or 2015."
By Adrian Ash
BullionVault.com
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Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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