Gold Rises with U.S. Dollar as Korean Conflict Flares
Commodities / Gold and Silver 2010 Nov 23, 2010 - 08:08 AM GMTBy: Adrian_Ash
THE PRICE OF PHYSICAL gold bullion rose to a 1-week high in Asian and early London trade on Tuesday, touching $1370 per ounce even as the US Dollar rose on news of South and North Korea exchanging shell-fire over the disputed border island of Yeonpyeong.
Asian stock markets dropped up to 2%. Crude oil fell hard towards $80 per barrel. Silver prices unwound Monday's 2.3% rally.
The Euro fell to $1.35 – and the gold price in Euros rose above €1000 per ounce – for the first time in five sessions as Sinn Fein called for the resignation of Irish premier Brian Cowen following the joint EU-IMF intervention in Dublin's €90 billion debt.
"It seems that gold's bull-run, which has lasted more than eight years, has gathered fresh momentum," says the latest Metals Monthly from the VM Group in London for ABN Amro Bank.
"The Fed's second round of quantitative easing and the ongoing currency disputes will serve to enhance gold's 'trusted' image."
World Bank president Robert Zoellick last week called for some element of gold price reference in the global monetary system, notes VM, and "Such disquiet and attention is tailor-made for gold."
"The Eurozone cannot live with a strong Euro," writes Mansoor Mohi-uddin, managing director of currency strategy at Swiss bank UBS, in today's Financial Times, blaming the Federal Reserve's second-round of quantitative easing for the current turmoil in Europe.
Just as the Euro became over-valued in mid-2009 thanks to the falling Dollar, he believes, so this month's QE2 means lower export sales, lower growth forecasts, and thus a heavier debt burden for weaker Euro-union members.
"We don't have the luxury of time" in accepting the EU-IMF bail-out, said Dublin's transport minister Noel Dempsey this morning, rebuffing calls for an immediate general election.
EU economic commissioner Olli Rehn confirmed that it is "essential" Ireland's emergency budget is passed before Dublin's EU partners transfer the sums agreed.
A consortium of pension fund managers, insurance companies and private investors meantime challenged Anglo Irish Bank's offer of 20¢ in the Euro on their bondholdings, part of a €1.6bn buy-out offered by Dublin's beleaguered coalition government.
Madrid today sold a little over €4bn in new debt, but only at sharply higher interest-costs from Spain's most recent sale.
European stock markets lost more than 1% by lunchtime.
"Gold remains a buy on dips," says today's note from Walter de Wet's team at Standard Bank. "Not only do financial market conditions support gold investment demand, but the physical gold market also remains supportive."
Private Indian demand to buy gold should "remain positive" throughout the current wedding season, says Standard, with the Western Hemisphere then celebrating Christmas and the Chinese New Year falling on 3rd Feb. 2011.
Sovereign credit risk in Europe will meantime "provide investment demand for gold [and] combined with the physical market – which looks to provide support on dips – we believe gold in Euro-terms should outperform gold in Dollar-terms for the time being."
"Deals are very limited today" however, a Mumbai bank's Gold Dealer told Reuters earlier. "We haven't seen big transactions so far" because a falling Rupee driving local Indian prices back above INR 20,000 per 10 grams.
Over in China – the world's second largest private gold consumer – Beijing banned the hoarding of coal and oil in a bid to cut the 4.4% inflation rate, urging local officials to act with a "stronger sense of responsibility."
Both North and South Korea accused each other of firing first in this morning's clash, but the United States called Pyongyang "belligerent" and UK foreign secretary William Hague said the North's attack was "unprovoked".
China said it was "concerned" by the action. Russia – which yesterday announced raising its central-bank gold bullion reserves to 774 tonnes, overtaking Japan in the world's central-bank table – called North Korea's attack "absolutely unacceptable".
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.
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