Gold Hits New Record Dollar High, Busts Through €700 on Secret Petro-Currency Talks
Commodities / Gold & Silver 2009 Oct 06, 2009 - 07:55 AMBy: Adrian_Ash
THE PRICE OF GOLD leapt in Asian and London dealing on Tuesday, recording its third-highest London Fix before rising further to hit a new all-time high for US-Dollar investors at $1035 an ounce.
The Euro also jumped, reaching a two-week high above $1.4740 after a British newspaper claimed the Opec oil cartel and Russia are working secretly with China, Japan and France to sidestep the US Dollar in settling oil payments.
But the price of gold rose faster still, taking the Euro-price of bullion above €700 for the first time in more than six months.
Government bonds were little changed. European stock markets rose 1.5%, driven higher by mining stocks.
The GSCI commodities index leapt 1.7%. Crude oil rose back above $71 per barrel.
"With the Dollar remaining the dominant force driving prices, gold's relationship to its fundamentals remains very much at arm's length," reckons Manqoba Madinane at Standard Bank, pointing to "weak global fabrication demand."
"The main thing is the weaker US Dollar and India is reporting increased demand," said an Asian trader to Reuters this morning.
Citing "both Gulf Arab and Chinese banking sources in Hong Kong", London's Independent newspaper today ran a front-page splash claiming that China, Russia, Japan and France have held secret talks to stop using the US currency for trading oil.
"[They will move] instead to a basket of currencies including the Japanese Yen and Chinese Yuan, the Euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar," says Robert Fisk, The Independent's Middle East politics correspondent.
The central banks named were quick to deny the report, with Saudi central-bank chief Muhammad al-Jasser calling the article "absolutely wrong".
"This is not new news of course," writes Dennis Gartman of the eponymous $5,000 advisory letter, "[but] this is not The Sun nor the New York Post. We suspect that the leaks made to The Independent are to be taken quite seriously.
"Certainly the markets are taking it as such, and we should also."
Oil analysts at Petromatrix called the article "loosely written", however, while BNP Paribas noted that Russia first proposed non-Dollar oil settlement in 2003.
BarCap in London says its Middle East team expect the single Gulf currency to be postponed beyond 2010, and "The plan would be completely nonsensical," says Commerzbank.
"Who would be in a position to set the weighting of such a synthetic 'oil trading currency' in a binding way?"
"Any shift will be subtle and never formalized to the extent to disrupt markedly the value of the Dollar," notes Bank of Tokyo-Mitsubishi's London office in a note, also quoted by the Financial Times.
"Oil-producing nations hold trillions of dollars in reserves and sovereign wealth funds."
On the official policy front today, "The basis for such a low interest rate setting has now passed," said Reserve Bank of Australia governor Glenn Stevens this morning, surprising the currency market with a 0.25% rate-hike to 3.25%.
Only one out of 20 economists surveyed by Bloomberg News anticipated the move. The Australian Dollar rose 1.5% vs. the US currency, touching new 14-month highs.
The Aussie gold price recovered an initial A$15 plunge to trade unchanged on the day at A$1,159 an ounce – some 25% below its peak of Feb. this year.
Australian base rates now stand 3.0% above US, Japanese and Swiss interest rates.
"It's quite a pre-emptive move," reckons Su-Lin Ong, an economist at RBC Capital Markets in Sydney. "The Reserve Bank is very comfortable the globe is returning to firmer growth."
But "There's a lot of risk going ahead," said Nobel-laureate economist Joseph Stiglitz in an interview with Bloomberg TV from Istanbul yesterday.
"There's a very big risk that markets have been irrationally exuberant."
Citing last week's worse-than-expected US jobs data. "It's pretty clear that the [economic] situation will continue to get worse," he said.
By Adrian Ash
BullionVault.com
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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
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