By From Adrian Ash
As Stocks Fall, US Fed “Likely” to Extend Money-Creation
THE PRICE GOLD fell $10 an ounce from Thursday’s new 7-week high in light wholesale dealing today, nearing the weekend 1% up from last Friday as world stock markets extended their drop.
Government debt prices rose, pushing two-year US yields down to new all-time lows as the Japanese Yen flirted again with a 15-year high to the Dollar.
Crude oil struggled below $75 per barrel. Silver prices gave back the last of the week’s gains, trading down to $18.12 per ounce.
“After years of being long, [we now] see gold as vulnerable to central bank inactivity in the face of rising deflation risk,” Goldman Sachs’ Market Pulse team advised a select group of institutional clients this week.
Last week, Goldman Sachs’ commodities analysts publicly raised their 2010 price-target to $1300 an ounce.
The investment bank’s Market Pulse advice – not intended for the general public, but posted on the ZeroHedge site – jars however with its own stated view that the US Fed “is likely to resume quantitative easing” before the end of 2010.
More central-bank money creation “is possible,” says Standard Bank’s chief forex strategist Steve Barrow today, “and is not a source of future strength” for developed-world currencies.”
“We’ve long held the view that liquidity (not necessarily inflation) drives commodity prices higher,” writes Barrow’s colleague Walter de Wet, “and gold benefits the most from this effect.”
Peaking after the first wave of quantitative easing in July 2009, the US money supply “is again trending higher,” says Standard Bank’s senior commodity analyst.
“We view this as a positive sign, especially for gold.”
After Thursday’s weak US jobs and business figures sent New York stocks sharply lower in thin trade, economic data releases were confined today to Canada, where the Consumer Price Index showed its second month-on-month fall in succession for July.
The Canadian Dollar fell on the news, helping the CAD gold price hit its best level since 1 July at $1292 per ounce.
The British Pound meantime dropped out of this week’s tight trading range, pushing the gold price in Sterling up to a five-week high of £796 an ounce.
The Euro also fell hard, dropping to a 7-week low against the Japanese Yen and slipping below $1.27 in Dollars.
Eurozone investors wanting to buy gold today saw the price rise to its highest level since 2 July above €31,180 per kilo.
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 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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