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Gold Re-Touches New Record High as Dollar Sinks, Oil Rises & Eurozone Bonds Point to Trouble Inside the Currency Union

-- Posted Thursday, 6 March 2008 | Digg This ArticleDigg It! | Source:

London Gold Market Report

from Adrian Ash


08:40 EST, Thurs 6 March


THE PRICE OF PHYSICAL gold bullion moved in a tight 0.8% range early Thursday, re-touching yesterday's new all-time high above $992 per ounce as the US Dollar sank once again.

As the opening drew near in New York – where a small bomb damaged an army recruitment center in Times Square overnight – crude oil jumped to a new record above $105 per barrel.

European stock markets meantime ticked 0.3% lower as the Euro single currency leapt to a new all-time high of $1.5345 after the central bank in Frankfurt kept its interest rates on hold at 4.0%.

"We could see Gold Prices spike this year and hit $1,500 per ounce," reckons Jay Taylor, editor of the Gold & Technology Stocks newsletter.

Peter Spina of, also speaking to Reuters, agrees that $1,500 or even $2,000 gold is "definitely possible" in the next year, while Peter Schiff of Euro Pacific Capital says "gold has a shot at $1,200 or even $1,500 this year.

"It is a measure of the value of currencies and will go up as long as central banks continue to devalue currencies."

Facing the fastest rate of Euro devaluation since the currency was launched in 1999, the European Central Bank today held its interest rates at 4.0% even after German factory orders showed a surprise 1.5% drop for January.

The Euro now pays fully 100 basis points more than the current US Fed funds rate, widely expected to fall another 75 points to 2.25% when the US central bank next meets on March 18th – and "there are pretty clear expectations for a further widening in interest rate differentials with the United States," says Tomoko Fujii, head of strategy at Bank of America in Tokyo, "keeping the Dollar at a disadvantage."

But within the 15-nation Euro currency zone, government bond yields point to growing pressures internal to the monetary union. "Club Med bonds have been hit hard," says Mark Ostwald of Insinger de Beaufort, referring to Italian, Greek and Spanish government debt.

"People have realized that countries like Italy and Spain have not carried out the reforms needed to control wages and boost productivity, and are now getting into trouble," he told The Telegraph in London overnight.

Today's Il Sole newspaper in Rome reports that the Italian Treasury has now stepped into buy up its own government bonds to support their price, because the "spread" between Italian bond yields and the return offered by German bunds – the benchmark for Euro debt – has reached a post-union record of 0.55%.

"A similar pattern has emerged across the southern belt of the Eurozone," says The Telegraph, "with spreads hitting post-EMU highs of 53 basis points versus Greece, 44 for Portugal, 38 for Belgium and 36 for Spain."

The British Pound meantime jumped today to a new high for 2008 above $2.00 after the Bank of England voted to keep its interest rates on hold at 5.25%. That move kept the yield-gap with US Dollars at 225 basis points, and it knocked the Gold Price in Sterling 0.7% off Wednesday's near record high.

Despite the UK's relatively high interest rates, however, the British Pound has now lost two-thirds of its value against Gold Bullion since the current prime minister, Gordon Brown, famously sold off half the UK's official gold reserves back in June 1999 – the very bottom of the metal's two-decade bear market.

On Monday this week the Pound hit a new all-time low against gold, worth just 1/498th of an ounce.

Inflation of the UK money supply, meanwhile, was last pegged at 12.9% in the year to January. The world supply of gold bullion, in contrast, grew by less than 1.6% during 2007 according to data from the GFMS consultancy in London.

New Gold Mining Output added just 2,447 tonnes to the existing above-ground stock – a drop of 3% from 2006 and lower than all-but-one year of this decade's bull market so far.

"Shortages are developing because production is declining," says Jim Rogers, legendary commodities investor and author of the best-selling Adventure Capitalist, in a new interview with Reuters.

"People have been telling me for five years that oil prices are going down. Every time I ask them where the supply is coming from [but] so far, nobody has been able to tell me.

"Oil fields are in decline, copper mines are in decline. Whether it's oil, wheat or sugar, the world does not have new production capacity."

Platinum prices fell sharply early Thursday on news of a new energy agreement in South Africa – the No.1 producer of the industrial metal – where miners are now expecting 95% of normal power supplies, up from the 90% imposed since late January.

Over in India – where private Gold Buying accounted for one ounce in every five sold worldwide last year – current demand remains "very, very slack" due to the record high price says Prithviraj Kothari of Riddisiddhi Bullions in Mumbai.

"But there are many people who are short at around $980 an ounce levels," he said this morning. "They have to cover up soon."

And with the spring wedding season fast approaching, "there are people waiting in the sidelines to buy," says Sanjiv Agarwal at Reva Corp Ltd. "They want to see some stability."

Buying activity gathered momentum today, reports Livemint – the Wall Street Journal's New Delhi service. "The Gold Market doesn’t seem to be giving up its momentum," one analyst at IL&FS Investsmart Commodities told the newswire.

"There is no negative news [for gold] so far to help in profit taking."

The local Gold Price in New Delhi today hit a new record high above 13,050 Rupees per 10 grams.


Adrian Ash



Gold price chart, no delay   |   Free Report: 5 Myths of the Gold Market


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 – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.


(c) BullionVault 2008


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 Thursday, 6 March 2008 | Digg This Article | Source:


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