Gold Trades Above $800; Commodity Bull Market "Still in Early Stages"

By: Adrian_Ash

SPOT GOLD PRICES held above $800 per ounce early Wednesday even as the US Dollar rose on the world's currency markets, while crude oil broke back above $90 per barrel after the Opec oil cartel agreed in Abu Dhabi to keep output quotas unchanged.

The resulting 2% jump in oil prices "spurred late buy-backs in gold" in Tokyo, according to Tatsuo Kageyama at Kanetsu Asset Management, helping the Gold Price on Tocom futures for delivery in Oct. '08 to gain 2% as well.

The Nikkei stock index ended the session 0.8% to the good, while here in London the resource-heavy FTSE100 index added 1.2% by lunchtime.

Back in the Gold Market , the Morning Fix of $801.75 per ounce was the highest fix in almost a week, but gold moved higher still for non-US buyers.

For French, Italian and German investors wanting to Buy Gold Today , the price rose above €546 per ounce as the single currency dropped half-a-cent to $14715.

Now standing more than 2.5¢ below its lifetime record high of mid-Nov., the Euro was driven lower by a weaker-than-forecast German business confidence index, plus a 0.7% drop in European retail sales reported for Oct.

The British Pound also skidded on a slew of poor data and bad news, slumping to a two-week low beneath $2.0400 as the Halifax house-price index dropped 1.1% for the month and the Purchasing Managers Index (PMI) for the service sector came in 2% below City forecasts.

"The past three months have seen the steepest real fall in UK house prices at 13.1% since the dark days of 1992 and the Major/ERM recession," says Sean Corrigan of Diapason Commodities Management in an email note sent to BullionVault today.

"Of course, thanks to Gordon Brown's long reign of 'Prudence', household debt as a fraction of income is twice what it was back then at 160%. Moreover, mortgage equity withdrawal has averaged more than 6% of disposable income over the past five years – a proportion every bit as great as that in sub-prime racked America.

"And people think Sterling is a refuge from the Dollar!" (Read more from Sean Corrigan on the Outlook for Inflation here...)

The British Pound's woes today helped Gold Priced in Sterling continue its rise, hitting a six-session high above £394 per ounce after the City of London's watchdog – the Financial Services Authority – warned mortgage to expect a "very difficult" market in 2008 as 1.4 million home-loans adjust to higher repayments.

A document leaked to The Daily Telegraph overnight also revealed plans to nationalize Northern Rock – the over-geared mortgage lender that suffered Britain's first banking run by panicked depositors in nearly 130 years this summer – in just one sitting of Parliament if a sale isn't achieved by February.

Meantime in Shanghai this morning, copper futures rose alongside zinc and aluminum as China Construction Bank, the country's biggest mortgage lender, looked to sell 4 billion Yuan ($541m) of residential mortgage-backed securities.

China's CNPC Research Institute of Economics and Technology said today that the nation's oil demand will rise 4.5% every year until 2015. Kerosene demand may double to 23.3 million tons. Saudi Aramco, the giant mid-east supplier, today raised its prices to Asian buyers by $1.30 a barrel.

US buyers face an increase of $3.10 to $4.70 per barrel.

"Our view is that the commodity bull market is still very much in its early stages," said Kevin Norrish of Barclays Capital in New York yesterday.

Launching the giant UK bank's 2008 outlook for natural resources, he pegged crude oil well above $100 per barrel and forecast a 10% gain in copper prices. Norrish believes Gold Prices will average $830 per ounce next year, more than one-fifth above the average price of the last 12 months.

"The gain, which tops the $755 average of 15 analysts surveyed by Bloomberg," the newswire says today, "will be aided by declining production from mines in South Africa and rising inflation, which attracts investors seeking a haven."

Since the start of Sept. this year, broad-based commodities investments have returned more than 20% gains. Government bonds, on the other hand – the apparent 'safe haven' of choice for institutional investors as the global credit crunch bites – have returned less than 10%.

Gold Priced in Dollars has risen by more than 18% since Sept. 1st, closing November with its highest monthly average on record – the third such new high in succession.

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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