From Adrian Ash
Or “Outrageous” $1800 on Euro Crisis, US-China Currency War
THE PRICE OF GOLD in professional wholesale dealing touched a 4-session high early Tuesday at $1390 per ounce, rising for Euro and UK investors as world stock markets hit new two-year highs.
Platinum prices rose to $1715 the ounce at today’s London Fix, gaining some 14.6% higher from New Year 2010.
Slipping back from $29.50 an ounce on Tuesday, the silver price stood more than 74% higher from the start of the year.
“Trading has been very thin so far,” says a London dealer in a note, likening Tuesday’s volumes to “the late days of summer.”
Noting strong inflows into newly-launched US precious-metal and platinum trust funds, recent demand is “demonstrating bullishness across the entire complex,” says a London analyst, “indicating wider interest.”
On the political front today, North Korea said it wouldn’t “retaliate” after its southern neighbor – with whom it’s still officially at war, almost 60 years after conflict began – ran military exercises on a disputed island near their border.
US crude oil contracts crossed back above $89 per barrel, and copper prices hit fresh all-time highs after China reported rising imports of the metal.
US Treasury bonds also pushed higher, but German government debt slipped in price after Chinese vice-premier Wanh Qishan said Beijing had taken “concrete action” to support the Eurozone amid the currency union’s deficit crisis.
The Euro rallied half-a-cent on the forex market but soon fell back, approaching new record lows vs. the Swiss Franc – and buoying the Gold Price in Euros above €33,800 per kilo – as the Moody’s rating agency put Portugal’s debt on “downgrade watch” and Spain had to pay higher interest rates on new bond-market borrowing.
“The rating agencies are playing catch up with events,” says Daiwa Capital Markets’ Chris Scicluna.
“Arguably they’ve got a long way to go to get back up to speed.”
UK gilt prices also slipped after London announced a new record deficit on public spending for the fiscal year to date, with Nov.’s gap between tax revenue and expenditure widening to £23.3 billion.
“There is now a very serious risk that the [UK] government will miss its fiscal targets for 2010/11,” notes Howard Archer of IHS Global Insight, questioning the coalition’s “austerity” plans.
“Any serious hit to economic activity coming from the prolonged bad weather will only make things harder.”
The Pound fell to new 3-month lows vs. the Dollar, nudging the Gold Price in Sterling back up towards £900 an ounce – a record high when first breached a fortnight ago.
All told in 2010, UK government bond buyers have made 6.7% according to Bloomberg data, while US Treasury bond buyers have made total returns of 5.7%.
World stock markets have risen 11% in Dollar terms, says the MSCI Barra World Index.
The Gold Price has meantime gained more than 26% in Dollars, 32% in Sterling, and 37% vs. the Euro.
“So long as there is bad news about the Euro and European sovereign debt, and so long as we are seeing the potential for the Euro to break up, that is probably the driver of the gold price,” says Ian Henderson at J.P.Morgan Asset Management, speaking to Reuters.
“I’ve never been a long term advocate of gold as an alternative to currencies, but it has now adopted that role.”
Henderson forecasts a Gold Price rise to $1600 in 2011 – a level which Capital Economics sees gold reaching by mid-year – while Saxo Bank sets an “Outrageous 2011 Gold Prediction” of $1800 per ounce should a rising Dollar spark further “currency wars” with China.
A new survey of 44 investors and Gold Mining executives conducted by PricewaterhouseCoopers’s Canadian Mining Group forecasts a peak of $1500 per ounce for 2011.
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2010
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.