By From Adrian Ash
Indian and Chinese Investors as QEII Gains “Forceful Advocate
THE PRICE OF WHOLESALE gold bullion touched yet another all-time high against the Dollar in London on Thursday, breaking $1315 an ounce as the US currency slid once more on the forex market before easing back.
Investors buying gold today in India and China, the world’s two top demand nations, also saw it breach new record highs, as did Canadian buyers.
“Light selling emerged” in early Asian trade, according to a Hong Kong dealer, but for Dollar gold buyers “the trend remains higher” says Russell Browne at bullion-bank Scotia Mocatta, setting a “technical target” at $1369 with support now raised to $1284.
“Medium-term, the…$1400 region will remain our upside target,” says the latest weekly report from Commerzbank analyst Axel Rudolph.
Edging back however from 3-month highs above £830 per ounce vs. the Pound today, gold stood unchanged for Euro, Swiss and Australian buyers, trading at the same level as it did 7 weeks ago.
“Is the current gold ‘super’ rally really that impressive?” asks Mitsubishi strategist Matthew Turner, quoted by the Platts news service today.
“The Euro [gold price] chart doesn’t look like a roaring market.”
The US Dollar today fell to fresh 5-month lows vs. the Euro, and also dropped within a few points of the 15-year lows to the Yen which earlier this month spurred the Bank of Japan to sell its own currency to depress its value.
Iran’s central bank today offered buyers an “unrestricted supply” of foreign currencies and gold bullion in a bid to “start managing currency and gold prices in the domestic market” according to the state-run Mehr news agency.
China’s commerce ministry detailed 50-100% tariffs on US chicken products for the next five years.
“If the US (and many other countries) adopt policies that implicitly or explicitly promote currency weakness,” says Standard Bank’s chief currency strategist Steve Barrow today, “the rise in the Euro could be pretty crippling.”
Irish finance minister Brian Lenihan today announced that – as a result of injecting fresh money into Dublin’s banks – “our general government deficit for 2010 will be around 32% of GDP,” the largest gap between tax revenue and spending ever recorded by a European Union state, according to the Financial Times.
One day after a general strike brought Spain to a standstill, Thursday morning also saw Moody’s become the last ratings agency to cut Spanish government debt from its top “triple A” ranking.
Moody’s cited “weak economic growth prospects”, especially in the construction and real-estate sectors, plus “considerable deterioration” of Madrid’s financial strength and “worsening debt affordability” as interest rates demanded by Spanish bond-buyers rise.
A detailed but anonymous research report published Wednesday questioned the Spanish government’s official GDP data, claiming that the economic decline between 2007 and 2009 may have been understated by as much as 14.2%.
Over in the United States, Tuesday’s claim in the Wall Street Journal that the Federal Reserve is about to buy $1 trillion of government bonds with the aim of knocking market-interest rates 0.25% lower was followed yesterday by speeches from four top-level Federal Reserve members.
“[We should act] vigorously, creatively, thoughtfully, and persistently, as long as we have options at our disposal,” said Boston Fed president Eric Rosengren.
“I do not expect outright deflation to develop,” said Atlanta Fed president Dennis Lockhart, “but the very low measured rate of inflation suggests [it] cannot be dismissed.”
“The benefits and drawbacks [of quantitative easing] must be balanced against each other,” said Minneapolis Fed chief Narayana Kocherlakota, even though QE itself “makes the calculus even more difficult than usual.”
But such “innovative” policy risks the Fed’s credibility, said the Philadelphia Fed’s Charles Plosser – currently a non-voting member – especially if results aren’t immediate.
“It also risks leading the public to believe that the Fed is seeking to monetize the deficit, and make it more difficult to return to normal policy when the time comes.”
New Fed policy-makers Janet Yellen and Sarah Bloom Raskin were meantime confirmed by the Senate as members of the central bank’s executive on Wednesday, meaning that “the ranks of policy makers more willing to act and believe that quantitative easing can be effective just went up,” in the words of one previous monetary-affairs director.
Yellen in particular is a “forceful advocate” of creating money to buy and thus boost the price of financial assets.
“The clearest that we can be about decisions we’re going to make going forward, the better,” said voting board-member Kevin Warsh earlier this week.
US and other major-economy government bonds were little changed early Thursday, while the cost of insuring Portuguese government bonds against default slipped from fresh record highs as Lisbon announced plans to slash its budget deficit.
European stocks fell after Swiss banking giant UBS said it won’t pay any dividends “for some time” to come, while further east,
“We believe it is a bad idea to invest in US or European bonds at present,” says Natixis bank’s Patrick Artus in a new client report.
“Due to high risk-aversion and sluggish nominal growth, long-term risk-free interest rates (Treasuries, Bunds, gilts, swaps) are abnormally low, but monetary policy is extremely expansionary.
“Headline inflation will rise in the medium term due to the rise in commodity prices,” Artus believes, thus hurting fixed-income bond holders.
Adrian Ash
Gold price chart, no delay | Buy gold online at live prices
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.
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