Gold Nears USD and Sterling Highs

From Adrian Ash

BullionVault

As Washington Denies “Global Currency War”, But QEII “Priced In” Say Analysts

THE PRICE OF GOLD stalled $3 shy of last week’s all-time Dollar record in London trade on Wednesday morning, peaking above $1361 an ounce as the US currency fell and global stock markets rose sharply.

Gold priced in Sterling rose within 1.3% of June’s record peak at £870 per ounce.

Eurozone investors wanting to buy gold saw it hold in the upper-end of the last nine weeks’ trading range at €31,300 per kilo.

Over in Asia, Tuesday’s lack of Indian and Chinese demand had been reversed according to wholesale dealers, with speculative buying noted on the electronic Globex platform after Beijing said China’s crude oil imports rose 35% last month from Sept. 2009, hitting a new record of 5.67 million barrels per day.

US crude oil futures jumped back towards $83 per barrel. European equity markets added well over 1%.

Trading-room rumors meantime said Egypt has become at least the 14th central bank to start selling its own currency in a bid to depress its value on the forex market.

“If the inflows are lumpy and volatile, or if they disrupt the macroeconomic situation, we will [also] intervene,” said Reserve Bank of India chief Duvvuri Subbarao this morning.

US Treasury secretary Tim Geithner said Tuesday he sees “No risk” of a global currency war – the term used last month by the Brazilian finance minister to describe the rash of naked interventions in the forex market by central banks worldwide.

In the last fortnight alone, believes Simon Derrick at Bank of New York Mellon, purchases of US Dollars by South Korea, Malaysia, Indonesia, Thailand and Taiwan have seen them accumulate foreign exchange reserves at up to six times their previous pace, collectively buying $28.74 billion according to IFR Markets.

“Despite this, the South Korean Won has climbed 5.7% against the Dollar since the start of September,” the Financial Times notes, “while the Malaysian Ringgit has gained 1.3% and the Thai Baht 4.3%.

“China has allowed the Renminbi to rise by 2% against the Dollar since the beginning of last month.”

Back in gold bullion, “The second round of quantitative easing from the US Fed ” – widely expected at $500bn to $2 trillion from the start of Nov. – “has been priced in for the past few weeks,” reckons Marwan Shakarchi at Swiss refiner MKS’s Finance division.

“The market is now on the look-out for stimulating news.”

Minutes from the Federal Reserve’s latest meeting, released Tuesday, showed policy-makers voicing growing concerns over rising unemployment and weakening inflation in the US economy, plus an increased willingness to start targeting absolute price levels rather than a particular rate of inflation.

Five voting members of the Fed committee actively support quantitative easing, says a note from analysts at RBS, while another five “will vote with the chairman”, Ben Bernanke.

Only one member – Thomas Hoenig, president of Kansas Fed – looks likely to vote against QEII at the forthcoming November meeting.

“The market is priced for the Fed to be pretty aggressive,” agrees Steve Barrow, chief currency strategist at Standard Bank. But “the upshot” of QEII “is likely to be further weakness for the Dollar and further falls in bond yields…[perhaps] by leaving the total indeterminate and, instead, announcing a monthly, or quarterly, buying program.

“[The Fed] will only stop this when it deems the policy is no longer necessary.”

Swiss bank UBS also expects the Fed to announce monthly targets for its QEII asset purchases, perhaps between $35 billion and $65bn of government Treasury bonds according to chief metals strategist Dr. Edel Tully.

“Gold could correct if the Fed’s asset purchases are smaller than expected,” she cautions, quoted by Dow Jones Newswire, “since gold prices have already risen substantially in anticipation of quantitative easing.”

Technical analysis also means “Charts are showing warning signs of a possible consolidation taking place,” according to Axel Rudolph at Commerzbank in Luxembourg.

“Put another way, the risks at present outweigh the potential rewards of buying gold at current levels,” he adds, in part because “Five and 25-year seasonality shows October to be a month in which the gold price tends to decline.”

Turning short-term bullish on the US Dollar, Dr. Marc Faber – the Swiss “über-bear” money manager now based in Thailand, and editor of the Gloom, Boom & Doom Report – agrees there could be a “significant correction” in gold and other commodity prices.

“This would represent a buying opportunity,” he advises.

Adrian Ash

BullionVault

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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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