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Gold Breaks New Record Highs vs. Sterling and Aussie Dollar as Bear Market Looms for Global Stock Markets

Commodities / Gold & Silver Nov 26, 2007 - 09:18 AM GMT

By: Adrian_Ash

Commodities

SPOT GOLD PRICES leapt in early trade Monday, gaining nearly 0.9% in the first hour of London trade to reach an 11-session high of $836 per ounce.

For British investors, Gold Priced in Pounds Sterling broke a new all-time record high above £404 per ounce, gaining 6.9% from its three-week low of midnight last Monday.


The Gold Price for anyone buying in Canadian Dollars this morning broke a new 26-year high above C$822 per ounce, rising 7.2% since the start of last week's trade.

The Aussie Dollar, meantime, has now lost more than 6.5% of its value against gold over the last seven days, dropping from A$880 per ounce to A$943 per ounce today – a new all-time record low.

"Fundamentals are quite favorable for bullion right now," said Wang Xinyou, senior analyst at Agricultural Bank of China, to Bloomberg in Beijing today, "with an expectation that the Dollar may weaken further and crude oil prices remain firm."

Asian stock markets also jumped early Monday, with the Tokyo stock market almost recovering last week's 1.8% loss after a report in the Nikkei business newspaper said the China Investment Corp (CIC) – Beijing's $200 billion government-owned wealth fund – is hiring strategists to advise on buying Japanese assets.

The price of US sweet & light crude oil meantime ticked higher above $98 per barrel, as Brent crude traded in London rose sharply on news that a fire on a North Sea rig has shut down 5,000 barrels per day of production.

On the foreign exchange markets, the European single currency crept above $1.4860 – the base of last weeks surge to all-time record highs just below $1.5000. The Japanese Yen held around ¥108 per Dollar.

"Credit fears returned to the market last week," notes Standard Bank in its Gold Market report today, "with a replay of August's events viewed as a real possibility.

"Spreads between central bank target rates and money market rates (such as Libor) in the US and Europe continue to rise, putting more pressure on lending as liquidity dries up in the interbank markets. This has prompted the ECB to state that it would pump additional liquidity into the financial systems this week.

"All eyes are now on the Fed; will it follow suit?"

The US Dollar has performed so badly in 2007, according to Bloomberg data, it has become the most profitable "funding" currency for forex speculation. Buying higher-yielding currencies such as the British Pound, Brazilian Real and Hungarian Forint by selling the Dollar would have paid 17% since Jan., the newswire report.

Financing the trade with Japanese Yen – formerly the world's No.1 "carry trade" victim – would have paid 9%. Using Swiss Francs would have paid only 7% gains.

"With the Dollar giving the appearance of being in free fall," says Avinash Persaud, chairman of Intelligence Capital in London, and formerly a scholar at both the IMF and Gresham College, "it increases the attractiveness of using the currency to fund investments.

"That process will only add more fuel to the decline."

Even as the Euro has risen towards the apparently critical $1.50-mark, however, Gold Priced in Euros has also risen sharply, recovering a two-week high near €563 per ounce this morning as the Dax in Frankfurt – and the Cac40 in Paris – crept 0.3% higher.

Looking ahead in the financial sector, "this year there will be rather more Christmas sackings, than stockings," warns an anonymous post at HereIsTheCity.com. "The last few weeks have been complete bedlam," says another, "particularly in metals and oils.

"I can't remember the last time I managed to get out to lunch with a client!"

Yesterday saw Schroders – a leading UK investment manager – knock 12.5% off the value of its flagship commercial property fund. It also warned investors to expect more than the agreed three-months' delay when withdrawing funds.

Goldman Sachs also faces trouble in its flagship Global Alpha hedge fund, according to Bloomberg. The only investment bank to avoid writing down huge mortgage-related losses in its latest earnings report, Goldman's has been told that $2 billion in client funds will be withdrawn by the end of December.

By Nov. 14th, the Global Alpha fund stood more than one-third lower for 2007 to date.

Cancelled flotations in the US and European stock markets now stand at record levels, reports Financial News this morning, with ten times as many IPOs put on hold since the start of October than during the last three months of 2006.

Data from Thomson Financial says that 67 initial offerings in the US – plus and 15 in Europe – have been pulled in the last six weeks.

"The optimists are gradually being squeezed into the pessimists' camp as each jump in share prices is met with another plunge," noted William Kay in last week's Sunday Times .

"This is classic bear-market behavior, and is likely to produce a mighty sell-off."

During the last bear market in world equities, when the S&P on Wall Street dropped almost half its value, Gold Prices finally broke a two-decade losing streak, rising by 25% against US Dollars, British Pounds and Euros.

In the short-term, "should the stock markets turn down sharply again," warns Darren Heathcote at Investec Australia, "I imagine gold will be sold again to cover margin calls.

"[But] one has to suspect we're going to look to test the highs again at $845 in the days ahead."

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

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.

Adrian Ash Archive

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