Gold Seen "Outpacing Drivers"

From Adrian Ash

BullionVault

At Fresh Dollar High as Global “Currency War” Intensifies

THE PRICE OF GOLD rose to fresh Dollar records above $1350 an ounce early Wednesday, hitting its 16th new all-time high in 17 trading days at the London Fix this morning.

Global stock markets also rose, as did major-economy government bonds, while the US Dollar slipped and commodities held flat.

Silver prices touched their best level since 24 Sept. 1980 above $23 per ounce.

“Gold is now outpacing its long-term drivers,” says today’s note from Walter de Wet at Standard Bank, pointing once more to low global interest rates and money-supply liquidity – but “not necessarily inflation – as the key factors pushing gold higher.

“The gold price has been rising much faster than liquidity [so] we are certainly more cautious with gold at these levels. Speculative length [in the derivatives market] is building, and scrap gold continues to come to the market.”

Short-term, “I wouldn’t be surprised if we saw $1360 this week,” says Carlos Sanchez at the CPM Group in New York, quoted by CNN.

“I think we’ll see $1400 by the end of the year.”

But “Sell, sell, sell,” counters a trader quoted by the professional Platts newswire in London, adding that “It’s over-done” on technical indicators of price appreciation, and that the UK’s Sun tabloid newspaper today mentions gold investment on page 3 – previously reserved for topless glamor models.

Latest data from London’s VM Group consultancy shows global gold investment swelling by 0.6% in the week-to-last-Tuesday, with growth in Japan’s Tocom derivatives as well as institutional demand for New York futures, plus 2.0% growth in the gold held to back Barclays Global Investors US-listed exchange-traded trust fund.

“Given the continued price strength we expect speculative gold investment to show another rise in the course of this week,” says VM’s weekly report for ABN Amro Bank.

“Too much gold has been bought in too short a time, particularly by speculators,” warns Wolfgang Wrzesniok-Rossbach at the Good Delivery-bar refining group Heraues in Hanau, Germany.

“[But] any correction will most likely be a prelude to the next rally,” believes Wrzesniok-Rossbach – the prize-winning speaker at last week’s London Bullion Market Association conference in Berlin – because “the general direction will not be changed.”

Noting the launch of gold futures and options trading on Germany’s Xetra-Gold exchange, “Interest for gold in Germany appears very much present,” he says, pointing also to “relatively robust demand for investment bars in the past few days” even though the political climate is nowhere near “as tense” as it was during the Greek deficit crisis of April and May.

“National debt problems could this time also be part of the reason behind physical gold buying.”

Following Monday’s rumors of intervention by the Bank of Israel to weaken the Shekel, and Tuesday’s fresh “quantitative easing” by the Bank of Japan, the Brazilian government today hiked the tax charged on foreign holdings of its bonds from 2% to 4%, in a bid to stem the Real’s appreciation on the currency market.

Brasilia’s finance minister, Guido Mantega, last week said we’ve entered an “international currency war” as countries compete for export-market share.

“A core group of major economies needs to agree urgently on a multilateral and coordinated package of policy measures…to avoid the damaging consequences of continued unilateral action,” says Charles Dallara, head of the Institute for International Finance, in an open letter to the International Monetary Fund (IMF).

Ahead of this month’s G20 meeting of advanced and fast-growing economy finance chiefs – and amid US accusations of “currency manipulation” – Chinese premier Wen Jiabao said last weekend that Beijing “has already bought and is holding Greek bonds…and will undertake a great effort to support Eurozone countries.”

Analysis from Lombard Street Research economist Gabriel Stein notes that China’s action helps buoy the Euro against the Dollar – thus making Chinese exports to the United States more competitive.

The gold price in Euros touched a two-week high in early trade on Wednesday, before slipping back from €31,365 per kilo.

British investors wanting to buy gold today saw the price hit its highest level since June 20th above £849 per ounce.

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.

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