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Gold Sets New Dollar Record

Commodities / Gold & Silver 2009 Sep 18, 2009 - 07:19 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD bounced from an overnight dip to $1008 an ounce early Friday to complete its longest run of rising prices since Nov. 2007 and record its highest-ever run of London Gold Fixes.

Set by London's biggest bullion banks as a clearing price for large orders – and used to value central-bank and industrial holdings – today's AM Gold Fix was the fifth consecutive fix above $1000 an ounce, setting an average of $1017.15 since Wednesday morning.


The previous peak – hit in March 2008 – saw five consecutive London Gold Fixes average $1010.15 an ounce.

"The trend is your friend," says market-maker Scotia Mocatta in a technical note to clients, "with the 2008 [intra-day] high target of $1032 still in play."

"We would expect trailing stop losses below [Wednesday's] low of $1006," it adds, second-guessing the view of speculative players.

Nearing lunchtime in London some 0.7% higher from last Friday versus the Dollar, the gold price looked set for its fifth weekly gain running, the best run in 22 months according to Bloomberg data.

For UK investors and savers now looking to buy gold, the price traded at a five-month high of £620 an ounce. But the gold price in Euros slipped as the single currency hit fresh one-year highs on the forex market, falling below €690.

"The very high yields that have been on offer in non-core Eurozone bond markets have all but gone," writes Stephen Barrow at Standard Bank today, noting that Europe's growing balance-of-trade surplus hasn't been the only factor supporting the single currency's forex value.

"[But] there still seems to be enough to attract foreign investors...and make Eurozone investors wary of buying overseas assets...to keep the Euro strong."

Barrow expects the Euro to reach $1.55 or above against the Dollar, also rising against other currencies and "sending the trade-weighted index to new historic highs."

"It would be premature to call the end of the [gold] rally," said one Hong Kong dealer in a note to clients today after Asian trade saw gold prices slip with local stock markets.

"The uptrend in still intact."

Shanghai shares dropped 3% and Taiwan fell 1% on Friday as worries grew over the US-Chinese trade dispute.

Ahead of next week's meeting of the G20 industrialized nations in Pittsburgh, a report from the World Trade Organization this week cited 91 protectionist measures imposed by member states since the last summit in April – fifteen of them from the United States.

"China is getting all worked up about the wrong thing when it comes to the United States," says Bloomberg columnist William Pesek. Its "real problem", he believes, is that US Dollars – stacked up in Beijing's huge $2 trillion central-bank reserves – are now being borrowed and sold to finance 'carry trade' speculation in better-return assets.

"The Dollar is the cheapest funding currency bar none," says a Singapore strategist, "only challenged by the UK in terms of the risks from money printing and escalating deficits."

"There are opportunities for investors to take advantage of increasing liquidity provided by major central banks," agrees Nomura Securities' economist Tatsufumi Okoshi, speaking to Reuters in Tokyo this morning.

"But the situation is the same as before – there are few attractive assets other than gold."

Meantime in India – overtaken by China as the world's No.1 market for private gold buying in 2009 to date – dealers and jewelers today reported strong sales as the autumnal festive season continued, despite new record-high prices above 16,000 Rupees per 10 grams.

Sales of old jewelry back to Indian gold dealers are also defying typical patterns, says one industry veteran, falling to half their usual level.

"Normally, jewelry retailers collect 25-30 grams of used gold against the sale of every 100 grams," the Business Standard quotes Ashok Minawala, chairman of the All India Gems & Jewelry Association.

Globally, scrap-gold sales jumped 39% to a record 880 tonnes during the first six months of '09 according to the GFMS consultancy, driven by the spring's record-high prices in all currencies bar the Dollar and Yen.

"[Usually] the recovery of scrap intensifies when precious metal prices head north. But this time, in spite of gold hitting a record high, scrap recovery by jewelers has declined to 12-15 grams. This indicates that consumers are holding on to the precious metal in anticipation of much more higher prices in the future."

On the gold-buying side, meantime, "Retail sales as well as bookings for the wedding season have gone up," the Economic Times today quotes Dinesh Jain of P.M.Shah Jewelers in Mumbai.

"People who were holding back on expectations of fall in prices have started purchasing, thinking it might go up further as the season progresses."

Minawala of All India Gems & Jewelry says first-quarter demand was very slow, "but since then the demand has picked up and is likely to remain positive till the rest of the financial year."

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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