-- Posted Wednesday, 20 June 2007 | Digg This Article
from Adrian Ash
BullionVault
07:48 ET Weds, 20 June 2007
SPOT GOLD PRICES traded in a tight range early Wednesday, dipping from an overnight peak of $662.50 per ounce in Asia to reach lunchtime in London just $1 lower.
The AM Fix came in at $659.60 per ounce, the highest London Fix for nearly two weeks.
Priced against the British Pound gold briefly dipped below £331 as Sterling spiked to a 10-day high on the currency markets, driven by news that the Bank of England very nearly voted to raise UK interest rates in June.
The minutes of the Old Lady's most recent meeting showed the governor, Mervyn King, voted in a 4 to 5 minority for another baby-step to 5.75%.
Even if the governor had prevailed, however, cash on deposit after tax and inflation would still pay zero per cent real interest right now. And since giving away money always finds plenty of takers, the Bank of England also said today that the UK money supply grew by 13.8% annualized in May, faster even than in April.
Raising rates to stem inflation has in fact worked against the Bank of England so far, encouraging fresh international flows into Sterling – and thus giving the domestic banks yet more money to lend. Allowing for the effects of securitization, private-sector lending grew by £35.3 billion ($70 billion) last month, taking the 12-month growth rate to 14.7%.
Back in the gold market, the Euro-price of bullion also dipped and then rose early Wednesday, trading in a €2 range below a two-week high of €493 per ounce. Against the Japanese Yen, gold held above a 10-session high of ¥81,700. For Canadian investors, the price of gold jumped 0.6% higher to C$705 per ounce, but it remained more than one-tenth below its peak of late February.
"Investors are a little bit uncertain about the potential for gold prices to move significantly higher in the short term," reckons David Moore at the Commonwealth Bank of Australia in Sydney.
"If the gold price was to move back to around $650 an ounce, I suspect that you might well see some people who would be buying gold on the dip at that point."
Tuesday's near-1% jump against the US Dollar to $660 and above came as US Treasuries found fresh bids in the bond market, pushing the 10-year yield down to 5.08% from last week's half-decade record above 5.32%.
But even with the threat of higher real rates of interest subsiding, the spot gold market is "still stuck around the important 658 level," notes Phil Smith for Reuters Market Technicals today, "which will continue to be significant. The weekly trendline is still worth watching for support," he adds, starting "from Q3 05."
Physical gold trading in Asia was muted according to Leon Lee, a dealing officer at the Bank of China in Hong Kong. "It's just a $1 range of $660 to $661. It's very quiet today."
At the Tocom in Tokyo the April '08 gold futures contract hit its highest level since June 7 before pulling back to end 0.5% higher at the equivalent of $666 per ounce. The Japanese Yen remained at a four-and-half year low to the Dollar after a survey of confidence amongst large Japanese manufacturers fell sharply for April-June from the start of the year.
"The pace of future interest rate adjustments will depend on the degree of improvement in the economy and prices," said Bank of Japan deputy governor Toshiro Muto in a speech earlier today.
"There is no predetermined schedule," Muto added – dashing hopes that Yen interest rates could rise despite the weak economy, keeping a lid on Japanese bond yields and helping the Nikkei equity index climb 0.25% for the day.
The upshot of Japan's decade-long fight to destroy the Yen with near-zero interest rates? While its exports have picked up as intended, "every kind of global asset is grossly inflated," writes Marc Faber in today's Financial Times.
"[Only] two asset classes stand out as big losers: the Zimbabwe Dollar and the US Dollar. Luckily, Robert Mugabe has reminded the world that the more money a government prints, the weaker its currency and the higher its inflation and interest rates will climb."
Anyone trying to save cash in Japan today can only wish that Faber were right!
Adrian Ash
BullionVault
Gold prices live | Gold price chart, no delay | Latest gold market news
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 BullionVault – where you can buy gold today 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.
-- Posted Wednesday, 20 June 2007 | Digg This Article
