By From Adrian Ash
Status as Stocks Shrug Off Korean Tensions, “Unstable” Western Monetary Policy
THE PRICE OF GOLD held onto a $10 rise from the start of Asian trade in London on Monday, priced around $1385 per ounce as Western stock markets ignored fresh saber-rattling between North and South Korea.
The single currency Euro dropped to a 2-week low, pushing the gold price in Euros up to an 8-session high of €33,900 per kilo.
“Gold buying emerged right from the start” of Asian trade says one Hong Kong dealer, citing the stand-off over South Korea’s military exercises on a disputed island near its border with the Stalinist North.
“Gold, supported by its safe haven status, remained well bid through the day,” adds another dealer, while base metals and silver bullion fell back with Chinese equities.
Copper futures traded in London then rose to hit new all-time highs.
“The reason we own the gold [in the Greenlight Capital fund] is because we’re worried about fiscal and monetary policies here in the United States and throughout the developed world,” said hedge-fund manager David Einhorn to Bloomberg last week.
“If we saw a better level of monetary stability, then we very well would sell our gold,” says Einhorn, who replaced a position in New York’s securitized GLD gold ETF with physical bullion holdings – now worth some $567 million – in spring 2009.
“The problem is, I really haven’t seen anyone take a single step in that direction.”
New data, released by US regulators after Friday’s close, showed that speculators in New York gold futures and options last week cut their net bullish betting by 2.5%.
So-called “Large Non-Commercial” traders cut their net position (of bullish minus bearish bets, as a group) to a 3-week low equivalent to 751 tonnes of gold.
Gold held in trust for securitized gold ETFs, in contrast, meantime rose to a record according data compiled by UBS Bank strategist Edel Tully.
“It’s been quite a while since ETF and coin demand both increased at the same time,” she adds, noting a pick-up in European gold coin buying.
“While one day of positive data does not suggest this tide is turning, we’ll be keeping a close watch on the underlining appetite.”
The world’s largest exchange traded gold fund – the New York, Tokyo, Hong Kong and Singapore-listed SPDR Gold Trust – added 15 tonnes to its holdings on Friday, the largest one-day addition since the height of the Greek deficit crisis in May.
Rising almost 1.2% by weight, the SPDR Gold fund’s holdings grew to a 2-month high of 1299 tonnes, worth some $57.8 billion at this morning’s London Fix.
“They were very patient and they tapped a real deep need in the ordinary investor to be able to buy and sell gold like a stock,” reckons Wharton finance professor Jeremy Siegel, speaking to Bloomberg News about the mining-industry’s World Gold Council, the prime mover behind the development of gold ETFs six years ago.
Bloomberg quotes Siegel’s research showing gold has risen 0.6% per yea after inflation since 1802, while US equities have risen 6.6% and bonds 3.6%.
Saying that gold’s value is decided by “fears of inflation or financial collapse…if you can judge how investors will evaluate those fears, you will do well,” Siegel tells the newswire.
“The new, new, new normal is for the US to be looking in pretty good shape,” reckons Goldman Sachs Asset Management’s chairman Jim O’Neill, downplaying relative growth prospects in emerging economies such as those he helped popularize 5 years ago by grouping together Brazil, Russia, India and China with the “BRICS” label.
“The US will continue to outperform the rest of the developed world [and] probably do pretty well versus most emerging markets as well,” agrees Robert Doll, chief equity strategist at the $3.4 trillion Blackrock Inc., forecasting a level of 1350 on the S&P500 index by Dec. 2011.
Last crossing below the gold price in Dollars in late April, the S&P index had previously traded above it for 19 years running.
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.
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