Gold Holds in 1% Range Ahead of Bernanke Speech; Inflation Threatens to Create "Penniless Billionaires"

By: Adrian_Ash

SPOT GOLD PRICES moved sideways in a broad 1% range early Thursday, dipping to $828 per ounce just ahead of the London opening before regaining $832 by lunchtime.

"It's important that we don't get over zealous at this point," says Brandon Lloyd for Mitsui in Sydney, pointing to the Gold Market 's 12-week run of rising prices to new 27-year highs, "especially given how quickly gold corrected from this level in 1980!"

"Technically, it is always prudent that we see a clean out in a rally to shake out the weak positions & ensure the rally is healthy. Unfortunately, there have been no signals that suggest a clean out is warranted.

"This makes an ardent bull bug like myself a little cautious."

On the foreign exchange market, the US Dollar slipped back after bouncing from new record lows overnight.

The Euro regained half-a-cent to approach $1.4700 once again. The British Pound held above $2.1050 – its own quarter-century high versus the Dollar – as traders correctly guessed the Bank of England would keep UK interest rates on hold at 5.75%.

"The Dollar cannot remain solely the problem of others [outside the US ]," said Nicholas Sarkozy, the French president, in a speech to Congress on Wednesday. "If we are not careful, monetary disarray could morph into economic war. We would all be its victims."

The European Central Bank also kept its rates on hold today, after Germany reported strong growth in its balance of trade for Sept. – denting hopes of a rate-cut to counter the Euro's current lifetime highs.

Ben Bernanke, chairman of the US Federal Reserve, will speak to the Joint Economic Committee at 11:00 EST today. After cutting US interest rates by 75 basis points since the global credit crisis began in August, he is expected to explain why he now says the balance of risks to inflation and economic growth are "balanced" – because the US bond market simply doesn't believe him.

"According to options analysis by the Cleveland Fed," reports the Financial Times this morning, "the market now sees a roughly 55% chance that the [US] central bank will cut another 50 basis points by the close of its January meeting, and an additional 15% chance that it will cut by 25 points by then."

The strong Pound capped the price of Gold in Sterling early today, holding 2% below yesterday's new record highs at £395 per ounce.

For French and German investors wanting to Buy Gold Today , the metal held below €570 in the first half of European trade.

"The stock market is getting crushed and that's why we're seeing a pullback in gold," reckons Robin Wilkin, chief technical analyst for J.P.Morgan's commodity and forex desks in London .

"It's all correlated."

But while the US stock market has now dropped more than 7% from its new all-time high of early October, the Gold Price has risen by 12% against the Dollar.

Gold Priced in Euros has gained more than 8% over the last five weeks. The top 100 shares in Europe , meantime, have dropped nearly 4% of their value on average.

"In the past, savers who wanted to avoid the problem of taking investment decisions and allocating their funds to different asset classes could keep their money in short term deposits," writes Dr.Marc Faber for AMEinfo.com today.

"But in today's new monetary regime – characterized by massive monetary and debt growth – savers are almost forced to invest into 'something' in order not to end up as 'penniless billionaires'."

The destruction of paper purchasing power rolled on in Thursday's early trading, as Asian stock markets dropped 2.8% for the day and bond yields continued to slide despite a fresh surge in commodity prices.

As the Wall Street open drew near, 10-year US Treasuries had been bid up to yield just 4.32%. Crude oil, on the other hand, bounced on news that a storm in the North Sea has forced ConocoPhillips and BP to shut-down 220,000 barrels per day of production.

"The oil market is being made more jittery by the storms in the North Sea ," said one London broker to Bloomberg this morning.

"With oil near $100, sentiment is unusually edgy."

Following on from the United Nations' warning that soaring food prices now threaten social unrest in developing countries, soybean prices were pushed higher after Argentina – the world's third-largest producer – raised export taxes on the oil-seed.

Wheat prices rose in South Africa , meantime, as the Rand slipped against the US Dollar.

The gold price for South African investors has continued to hit a series of new all-time highs since August. Trading above ZAR 5,100 per ounce, it has doubled in the last three years.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 2007

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