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Gold Follows Stocks Higher on Increased Risk Appetite

Commodities / Gold & Silver 2009 Jul 15, 2009 - 10:53 AM GMT

By: Adrian_Ash

Commodities

The PRICE OF PHYSICAL GOLD pushed higher once more early Wednesday, rising to its best level since July 2nd at $938 an ounce as world stock market also rose yet again and the United States reported faster-than-expected consumer price inflation.


Frankfurt's Dax index of German stocks gained nearly 2% despite worsening jobless data. Government bond prices fell, pushing yields higher, as US crude oil contracts moved north of $60 per barrel.

Both the Pound and the Euro also rose against the Dollar, breaking two-week highs, but gold rose faster still, hitting £571 for UK investors – towards the upper-end of gold's recent two-month trading range vs. Sterling.

Eurozone investors now Ready to Buy Gold also saw the price rise to a one-week high, adding 0.6% to €664.50.

Against the Japanese Yen the Euro was little changed near ¥131.

"Gold registered an up day for the fourth day in a row," notes Scotia Mocatta's technical analysis of Tuesday's action, citing "good buying" as the price closed London trade at $924 – "where the 100-day moving average lies."

"The money pumped into economies by governments around the world is likely to support various asset price bubbles across global markets in coming years," says Bill O'Neill, portfolio strategist at Merrill Lynch Global Wealth Management, speaking to the UK's CityWire.

"The fact is that gold is a good hedge against the legacy effects of governments throwing vast sums at the [crisis] issue."

Tuesday saw the Chicago Mercantile Exchange (CME) – the world's No.1 derivatives platform – announce clearing services for London's over-the-counter gold forward contracts.

Calling it a "direct response to customers' need for a secure way to manage counterparty credit exposure," the CME will begin clearing forward contracts – which operate just like Gold Futures, agreeing a delivery date and price for some time in the future, but without a formal exchange platform – on August 23rd.

"Investment demand for gold has been strong and anything that helps make the market more liquid and reduces counterparty risk is a positive," says James Steel, head of precious metals analysis at HSBC.

Mumbai's National Multi-Commodity Exchange (NMCE) is also extending its services in gold, it said today, launching a "gold mini contract" by the end of next month.

On the supply side, meantime, yesterday's failed negotiations for a 10% hike in South African gold miners' wages could see the National Union of Mineworkers "escalate" the dispute with strike action from next week.

"Levels of risk aversion remain as volatile as financial markets," says the MKS Finance division of the Swiss refining group today. "Optimism can easily reverse if upcoming earnings or economic announcements prove disappointing.

"Thus gold's range may have broadened, but no exciting break outs have occurred as yet."

Wednesday brought news of a greater-than-expected 5% drop in June sales for H&M, the world's third largest clothes retailer.

Employment in German manufacturing fell at its fastest pace in 5 years in May, new data showed, while the total number of unemployed people in the UK jumped by a quarterly record between Feb. and May, taking the jobless rate up to 7.6%.

Including those inactive workers who say they want to be in work, the jobless rate rose to 13.4%.

Including bonuses, pay growth in the private sector slipped to 1.9%, but rose to 3.5% for public sector staff.

Average weekly earnings across the whole UK economy peaked in February 2008, both in nominal and real terms. Since then, adjusted for inflation, average earnings have fallen by one eighth.

Over in the United States, June's consumer-price data showed a sharper-than-forecast rise of 0.7% month-on-month.

That cut the annualized fall to 1.4% from 1.6% expected. Excluding volatile food and fuel prices, the CPI rose 1.7% last month from a year earlier.

Meantime in Beijing, the Chinese authorities said the country's foreign reserve holdings jumped at a record pace in the second quarter of this year, breaking above $2 trillion.

Far outstripping China's export income and foreign direct investment flows, the Financial Times notes, the jump shows speculative "hot money" flowing into the fast-growing emerging giant.

"The same expectations of a Renminbi appreciation will start to accumulate all over again," said one un-named Beijing economist.

"China's foreign exchange reserve headache has returned," says Stephen Green for Standard Chartered in Shanghai.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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