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Gold Hits New Sterling Record as the British Pound Crashes Against the Dollar

Commodities / Gold & Silver 2009 Jan 20, 2009 - 12:28 PM GMT

By: Adrian_Ash

Commodities THE PRICE OF GOLD leapt late-morning in London on Tuesday, gaining more than 4% vs. the US Dollar as the world's media awaited President Barack Obama's inauguration speech in Washington.

The Gold Price in Euros also jumped 4%, reaching a 15-week high above €660.


For British investors wanting to Buy Gold today, the price leapt to fresh all-time highs above £612 an ounce as the Pound Sterling sank yet again and banking stocks fell.

Long-dated US Treasury bonds also fell sharply, pushing the 30-year yield almost 0.15% higher.

"During the presidential election campaign," notes Andrew Ward in today's Financial Times , "Barack Obama and John McCain argued [over] 'wasteful' government projects such as Alaska's notorious 'bridge to nowhere'.

"Obama now seems to be promising to build bridges and roads to almost everywhere."

"There's little doubt that Barack Obama campaigned on a pledge to bring new hope to the American people," adds Steven Barrow, currency analyst at Standard Bank in London, but it's doubtful that the honeymoon will last for the US Dollar's international value, he believes.

"The Chinese Renminbi remains a thorn in the side of the US trade balance, and Mr. Obama has vowed to fight for flexibility – and hence strength – in the Chinese currency.

"In order to see the Dollar weaken against the Renminbi, it may have to fall elsewhere."

Today the US currency held onto Monday's sharp bounce vs. the Euro but continued to slip against the Japanese Yen.

The Chinese Renminbi was little changed at 6.845 per Dollar – higher by more than one-fifth since Beijing allowed it float more freely in early 2005, shortly after George W.Bush's second term began.

China's "vendor financing" – under which it's funded America's consumer spending by recycling its own corporate profits into Treasury bonds – now accounts for more than one-fifth of all outstanding US government debt.

Treasury bond issuance for 2009 is already set to triple from 2008's level to $1.2 trillion.

"While the US Dollar has clearly benefitted through safe-haven demand in recent months, the outlook for this currency dims with interest rates at zero, a dire balance sheet, and a very loose fiscal policy strategy," says the new Precious Metals Forecast from London gold dealers Mitsui.

"In this situation, commodity markets could gain," the report says, looking ahead for Gold in 2009 . "The most likely avenue that mature economies will pursue is a vast fiscal stimulus injection...Inflation will become a very real concern once again."

Forecasting a drop of up to 4% in new Gold Mining supplies – and questioning the "sustainability" of alternative precious metals such as silver – "Gold is unlikely to fall below $680 this year," says Mitsui, "and we do not doubt the metal's ability to test $1,105 in the second-half of 2009."

Meantime in Asia this morning, Japanese consumer confidence sank to a new record lows in Dec., said the Cabinet Office.

Tokyo's Nikkei index lost 2.3% for the day. The Gold Price in Japanese Yen recovered Monday's start at ¥2,460 per gram.

US sweet-n-light crude oil today fell below $34 per barrel, widening the gap with Europe's benchmark, Brent crude, which held above $44.

For British investors – assured by the official UK data agency that inflation sank to just 0.9% per year at end-2008 – the Gold Price put on 10% from last Friday's low to reach a new record high at £612.

The Pound Sterling collapsed yet again, meanwhile, losing fully 9¢ from Monday's start to trade below $1.40 as London's banking stocks continued to slump.

Ten-year UK gilt yields rose further above 3.50% – more than 200 basis points above the Bank of England's target rate.

German bund yields, in contrast, ticked lower, with the 10-year bund paying barely 50 basis points above the European Central Bank's current target rate.

Stripping out indirect taxes as well as mortgage interest rates – which were dragged lower by Dec.'s record low Bank of England rate at 1.5% – the RPIY index of UK retail prices rose 4.0% for the year as a whole.

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 2009

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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