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Gold Imminent New Record High as Governments Set to Extend Stimulus

Commodities / Gold & Silver 2009 Sep 17, 2009 - 07:54 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD rose for the third day running on Thursday, hitting fresh 18-month highs during Asian trade as world equities gained 0.8% to new 2009 highs.

Government bonds fell sharply, while crude oil held above $72 per barrel.


The Bank of Japan held its key lending rate at 0.1%. The Swiss National Bank was expected to stick at 0.25% at its policy vote.

"Yesterday's higher-than-expected US consumer-price inflation numbers spurred further gold investment demand," reckons Stefan Graber at Credit Suisse in Singapore.

"The move above $1,000 is being warranted by fundamentals."

Documents leaked to Reuters say the European Union will urge continued monetary and fiscal stimulus at next week's G20 meeting of world leaders in Pittsburgh.

"Efforts must be maintained until recovery is secured," the documents state.

In the US, trade magazine Inside Mortgage Finance reports that over four-in-five of all new home-loans "benefited from some form of government support" in 2009 to date.

"There's no Asian [gold] demand at all because of higher prices" in the physical market however, according to Kate Harada at Mitsubishi Corp. in Tokyo.

"The current rally in precious metals is purely speculative and technically driven."

Despite a small upturn in gold imports to India – the world's No.1 consumer market – "Demand is dull and no one is committing to buy with prices nearing these peaks," said one Mumbai dealer to Reuters this morning.

"The overall appetite [for gold] has been hit." (Is Gold in a Bubble? Read more...)

Next month's Diwali festival will mark the peak of India's annual gold demand, and while "There is a demand for gold in the market, overall demand will be less by 30% during the forthcoming festive season," reckons Prithviraj Kothari, director at Riddhi Siddhi Bullions, speaking to the Economic Times on the sidelines of a conference earlier this week.

Outstanding volumes of US gold futures, in contrast, show a further 5% jump across the week-ending last night, adding to last week's near-record 17% rise in the number of Comex contracts now open.

Back here in London's professional wholesale market on Thursday, gold retreated from its early highs vs. the US Dollar to slip below last night's record closing high of $1,018 an ounce.

The US currency meanwhile sank to new 12-months on the forex market, falling through $1.4760 per Euro despite news of a faster-than-forecast contraction in European construction output.

Euro-strength capped the Gold Price for German, French and Italian savers below €695 an ounce, some 4.7% higher for Sept. so far.

Gold priced in Pounds Sterling touched a 4-month high at £620 an ounce.

"[Wednesday's] close above last week's high of $1,012 keeps the bullish momentum in place," says the latest technical analysis of Dollar prices from bullion bank Scotia Mocatta, "with short-term price target seen at the 2008 high of $1,032.

"Tough to pick a measured target [for this move] based on the triangle pennant, due to its width. Suggest 'pole' was $125 in length, so from the breakout level of $965 indicates measured target of $1,090.

"Only a close below $990 neutralizes the bullish outlook."

Longer-term, "We are forecasting an average gold price of $890 per ounce next year owing primarily to stronger economic growth and less investor interest in gold," says Caroline Bain, senior commodities editor at the Economist Intelligence Unit in London, speaking to ArabianBusiness.com.

Famously bearish on gold in the late 1990s and rarely commenting on its bull-market since, The Economist magazine said in Feb. this year that "Gold looks like a good each-way bet" just as it neared $1,000 an ounce.

"If equity and other commodity markets continue to rise strongly and inflationary pressures start to emerge," Bain adds, "gold will be attractive as a hedge against inflation."

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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