By From Adrian Ash
As Tokyo Fires Starting-Gun in FX “Race to the Bottom”
THE PRICE OF GOLD in wholesale dealing held tight some $5 below yesterday’s new Dollar high of $1275 an ounce in Asia and London on Wednesday, slipping back against all other major currencies bar the Japanese Yen, which fell on news that the Tokyo authorities are actively selling their own currency to depress its value.
“The race to the bottom in the FX markets is now on,” says a note from Mitsui’s metal dealing team in London.
“Price action [in gold] is very impulsive,” says bullion bank Scotia Mocatta, “suggesting the metal will move higher before we see a retracement.”
Finance minister Yoshihiko Noda today confirmed the Yen intervention – Tokyo’s first in six years – but said he’s still seeking joint action with the United States.
The Dollar/Yen exchange rate jumped 2% as news of Japan’s action spread, spurring a 2.3% gain in the Nikkei stock index but failing to stem early losses in European shares.
US crude oil contracts fell 1.5% to trade below $76 per barrel, while European government bonds also fell, pushing the yield offered to new buyers higher.
At an auction of new debt today, bond buyers demanded almost 3.4% interest on 12-month Portuguese debt, up from the 2.8% achieved at a sale on 1st Sept.
Russia meantime offered today to pay 7.30% on $1.1 billion of new federal debt.
Back in the precious metals market, silver prices rose to fresh 30-month highs at $20.60 an ounce.
The gold price in Sterling meantime slipped back after hitting an 11-week high at £823 an ounce.
Eurozone investors wanting to buy gold today saw the spot price little changed beneath €31,500 per kilo.
“The history of past [Yen] interventions is not good,” notes Standard Bank’s chief currency strategist Steve Barrow today, adding that “The Yen seems to be in a no-win situation.”
Buying $800 billion of the US currency in the first half of the last decade, the Bank of Japan failed to reverse a slide in the Dollar below ¥100.
Today, Barrow believes, the best Tokyo can hope for is that “heavy and persistent intervention” prevents a fall in Dollar/Yen below the “key” ¥80 level.
“‘Risk-on’ sentiment appears to weaken the Dollar against all currencies, including the Yen, while any ‘risk-off’ sentiment just seems to galvanize the Yen into making even more headway against the Dollar.”
A Chinese cabinet advisor meantime warned US lawmakers not to slap China with trade tariffs for being a “currency manipulator”.
China is now the United States’ fastest-growing export market, Development Research Center economist Ding Yifan told a seminar.
Should the 93 Democrat politicians who’ve signed a letter calling for punitive action get their way, he warned, Beijing could retaliate by selling its US Treasury bond holdings – now worth two-thirds of Beijing’s $2.45 trillion in forex reserves according to Reuters.
Over in the gold mining sector on Wednesday, the world’s fourth-largest miner – AngloGold Ashanti – announced a $1.37 billion cash raising so it can close the last 100 tonnes of its forward gold sales “hedge book”, built up during the long bear market in gold that ended in 2001.
Amongst investors and consumers buying gold, meantime, reported gold demand for August showed “significant falls” in the major centres of Dubai, Abu Dhabi and Turkey, writes Wolfgang Wrzesniok-Rossbach at the Heraeus refining group.
“Demand for physical investment gold in Germany in the past two weeks was again very low,” he reports, and “Some German investors again cashed out.
“Metal received by dealers and banks – mainly again in the form of Krugerrand coins – found no new buyers and ended up in melting pots at the refineries.”
Heraeus’ dealers in Hong Kong also report net sales by local investors, Wrzesniok-Rossbach adds. “Excess metal…is also finding its way to bullion bank [vaults] in London in the form of 12.5 kg bars.”
Demand for physically-backed gold ETF trusts rose on Tuesday, however, reversing two weeks of declines in the bullion held for the US-listed SPDR, which swelled 0.5% to more than 1298 tonnes.
Here at BullionVault, where gold and silver investors own their metal outright – rather than mediated through a trust structure – the value of client property rose further above $1 billion.
Adrian Ash
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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
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