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Gold Rises vs. US Dollar, Eases from Euro Record, as "Complications" Threaten Both Currencies

Commodities / Gold and Silver 2010 Dec 01, 2010 - 08:33 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE PRICE OF GOLD touched a near 3-week high for Dollar investors above $1396 per ounce early in London on Wednesday, slipping back from record highs in Euros and Sterling as the US currency dipped on the forex market.

European stock markets rallied hard – and major government bond prices eased back – while commodities also rose following a raft of stronger-than-expected manufacturing data worldwide.

Silver prices extended yesterday's 3.5% jump, hitting new 3-week highs above $28.50 per ounce.

"There was substantial ECB [bond] buying yesterday, but spreads still ended wider...and this certainly doesn't help," said one trader to the FT after European Central Bank chief Jean-Claude Trichet told politicians that decisions over the Eurozone's bond support program are "on going".

Ten-year Irish bonds rose 1.8% in price this morning and Spanish debt gained 1.5%, but they continued to offer near-record yields above 9.3% and 5.3% respectively.

The ECB has bought €67 billion of Eurozone government bonds since May.

The S&P credit ratings agency warned that it may downgrade the status of Portugal's government debt, while the United States sent a senior Treasury official to Europe to discuss the "shared agenda on strong and sustainable growth."

"[There are] too many complications in the Eurozone and the US," says MKS Finance trading head Bernard Sin, speaking to Bloomberg.

"People are long gold and probably will keep their long positions into the New Year."

Rupee gold prices in world No.1 consumer India meantime touched new record levels above Rs 20,700 per 10 grams today, and Vietnam's prime minister Nguyen Tan Dung ordered its central bank to "implement strong and effective measures to ensure the control and stability" of local gold prices, as well exchange and interest rates.

China's Lion Fund Management Co. yesterday won permission to invest up to $500 million of private investors' cash in foreign-listed gold ETFs, the first such exchange-traded gold offering allowed by Beijing.

Hong Kong authorities allowed the launch of domestic gold trust fund last month, backed by physical gold bullion held at the government-controlled depository near the island's airport.

China is now the world's No.2 gold consumer, accounting for 16% of global demand in the third quarter of this year according to data compiled for the World Gold Council market-development group.

"Tuesday was a breakout day for gold and silver as the metals bucked Euro weakness," says one London bullion dealer today.

"Precious metals were firm despite much higher prices and selling from Chinese and Japanese traders," says a Hong Kong dealer.

"When the hyperinflation fervor goes away, gold will be about as exciting as its less glamorous cousin, lead," reckons John Wasik, a columnist for Reuters.

Lead prices have risen 40% since the summer.

Broad commodity markets rose more than 1% on Wednesday morning, led by a rally in crude oil above $85 per barrel and backwardation in London copper contracts – where immediate settlement now costs 29% more than 3-month delivery – is "potentially indicating concern about near-term supply," says Bloomberg.

Analysts at BNP Paribas today hiked their 2011 gold price forecast by 20% to $1500 an ounce, adding that "If we see the gold rally extending in 2012, it will however take place at a more moderate pace [to average] around $1600.

A flood of Purchasing Managers' Indices (PMI) worldwide meantime showed manufacturing activity rising to half-year highs in India and China, while the Eurozone expanded 0.6% and the UK's PMI jumped to a 16-year high.

New data also showed Japanese vehicle sales dropping 31% last month from Nov. '09, while German retail sales showed a 0.7% drop, defying analyst expectations of a rise.

The European Central Bank meets to decide monetary policy tomorrow. Friday then brings the latest – and much-anticipated – US jobless stats.

"China's leading indicator [designed to provide "early signals of turning points between expansions and slowdowns" according to the Organization for Economic Co-Operation & Development] is pointing towards a very significant slowdown in economic growth ahead," says strategist Albert Edwards at Societe Generale in London.

"The last time the Chinese OECD leading indicator was this weak, commodity prices had just reached their euphoric mid-2008 peak...[and Beijing's] official leading indicator is even weaker.

"Surely this cannot just be coincidence?"

By Adrian Ash

Gold price chart, no delay   |   Buy gold online at live prices

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 , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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