Gold Rises Against All Currencies and Looks Set to Challenge All Time Highs

By: Mark_OByrne

Gold was up $5.90 to $906.40 per ounce in trading in New York yesterday and silver was up 23 cents to $16.74 per ounce. Gold continued to rally in Asia and surged in early trading in Europe and is up to $915 per ounce. Silver has also surged and is up to $17.02 per ounce.

Gold again rose in the other major currencies and surged to new near record highs in euros and sterling. The London AM Fix at 1030 GMT this morning was at $914 (up from $908.25  yesterday). Gold fixed at £468.96 (up from £465.53 yesterday) and €631.17 (up from €620.516 yesterday). (See table of record highs in various currencies below.)

Gold looks set to challenge last week's $936.80 record high and once again confound the skeptics. Gold is surging in all major currencies as it seems likely that major Central banks are set to cut interest rates in order to prevent a global recession. Even the ECB, the most hawkish and inflation conscious of all the central banks, is faltering in its resolve to target and fight inflation which is negative for the Euro and indeed for all fiat currencies and indeed the asset classes denominated in those currencies.  

‘Tricky Trichet' may not be that tricky after all and may also deserve the helicopter moniker reserved for Easy Al's successor Bernanke. Unlike his predecessor Duisenberg, he has helped fuel the fastest growth in the Euro M3 money supply. It now runs at three times the rate of the ECB's original guidelines, deemed consistent with low inflation. The US money supply is so out of control that in an effort to conceal this the government discontinued publishing M3 money supply growth.

These is also the risk of competitive currency devaluation as central banks  embark on a massive cycle of global money and credit creation.

Inflate or die seems to be the new mantra. This is obviously extremely bullish for the finite currency that is gold and will likely see gold reach it's inflation adjusted high of $2,400 per ounce faster than market participants expect. The macroeconomic climate for gold is possibly the most conducive it has ever been. It is even more conducive than in 1971 when Nixon went of the gold standard. Gold rallied nearly 3,000% in the next 9 years – from a fixed price of $35 per ounce to over $850 per ounce.

Were gold to again rise 3,000% from its lows in 1999 at some $250 per ounce it would reach $7,500. This is possible  especially if politicians and central bankers continue to print and therefore cheapen money in a way akin to a  banana republic.

Gold reaching the inflation adjusted 1980 high of 28 years ago of $2,400 per ounce in the next 5 years seems more than likely in the present macroeconomic, systemic and monetary climate.

There is little in the way of important data today and thus market sentiment may be again gained from equity markets. Continued volatility in international equity markets will increase safe haven demand for gold.

FX
Yesterdays interest rate announcements from the Bank of England and the ECB were as expected. A 25 basis point cut was duly delivered by the MPC and no change from the ECB. Those that were gambling on a larger cut from the BOE exited the market quickly pushing Sterling higher only briefly before being heavily sold for the rest of the afternoon. The slightly less hawkish tone from Trichet triggered heavy selling of the Euro too.

One of the main beneficiaries of the negative sentiment towards the European currencies was of course the US Dollar, which rallied strongly throughout the afternoon session and remained steady through Asian trading. We may be seeing the onset of a period of dollar strength in the FX markets, however investors underlying negativity toward the Greenback could be seen as gold continued to rally despite the rally in the dollar.

The Yen initially strengthened across the board before running in to profit taking post ECB and MPC. The Yen strength trend would appear to be unfolding nicely and even if we do not get a sub 154.00 close against the Euro this week, we should see this soon.

Support and Resistance
Strong support is at $850 to $860. Just because strong support is here does not mean that gold will reach these levels. Indeed there appears to be strong physical demand internationally for gold in the $890's.

Silver
Silver is trading at $16.95/70 at 1200GMT.

PGMs
Platinum remains near new record nominal highs and is trading at $1837/1847 (1200GMT).
The power crisis in South Africa continues. President Mbeki has been forced to apologise for the power outage and is attempting to calm fears. The situation is so serious that some are questioning if South Africa is ready to hold the World Cup in 2010.

Mitsui reported on the huge increase in ounces of platinum held in the platinum ETF. “Interest in the platinum ETF has once again shot up. For the ETF Securities contract, volume stands at 210,646oz as of 4th Feb. Since the 29th Jan, this ETF platform has grown by 57,581oz or 38%. This is similar to the behaviour of investors last November when platinum first went into backwardation.”
$2,000 per ounce platinum should be reached in the coming weeks.

The projected supply demand deficit in platinum will inevitably be higher than expected.

Palladium has also rallied and was trading at $427/433 an ounce (1200GMT).


Historical Record High Prices in GBP, USD and EUR

Today's London AM Fix at 1030 GMT this morning was at £468.96, $914 and €631.17.

By Mark O'Byrne, Executive Director

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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