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Gold Another New Record High as IMF Overvalued Statement Hits U.S. Dollar

Commodities / Gold & Silver 2009 Nov 09, 2009 - 07:36 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD jumped to new all-time Dollar records for the third time in four trading days early Monday in London, trading above $1110 an ounce – up more than 27% for 2009 to date – as the US currency fell hard on the forex market.

World stocks added 0.4% on the MSCI index to continue their four-month surge after Sunday's meeting of G20 political leaders in Scotland vowed to "continue to provide support for the economy until the recovery is assured."


Government bonds rose, pushing 10-year US Treasury yields down to 3.47%. Silver crept up to a 3-week high of $17.68 per ounce.

Crude oil, base metals and foodstuffs slipped, however, dragging the S&P GSCI commodity index 2.2% lower.

"With gold continuing to sail in uncharted waters it is difficult to say where we will head from here," says a note from Mitsui, the London market-maker, "but with investment interest at an all time high there remains room to the upside."

Weekly data released by US regulator the CFTC on Friday showed non-industry speculators grew their bets on the gold price rising by 2.2% in the week-to-last Tuesday.

"Recent developments suggest that speculators will have subsequently extended their long positions," notes Walter de Wet at Standard Bank today, "but much of the recent trading action has been technical and any correction may well trigger substantial sales."

"Within the longer-term trend," says de Wet's technical analyst colleague Darren Grabham at Standard, "we continue to forecast a move to $1325.

"An interim target level is at $1180."

Monday's new Dollar highs came as the US currency dropped more than half-a-per cent on its trade-weighted index.

Commodity and especially gold mining currencies such as the Australian Dollar and South African Rand rose sharply. The Euro hit its best level in two weeks vs. the US Dollar, briefly breaking above $1.50.

Sterling rose faster still, however – despite news of a faster-than-expected rise in German factory orders – notching up a 14-week high vs. the Dollar and a two-month high against the Euro.

That capped the gold price in Sterling just below £660 an ounce, holding tight inside a range of just 0.9% for the fourth session running. Eurozone investors wanting to buy gold today saw the price move above €740 an ounce.

Besides its Dollar price, gold hit a series of new records against Chinese Yuan, Indian Rupees and Vietnamese Dong.

"Why should China go on losing in Dollars when the gold price is rising?" asks William Rees-Mogg in The Times of London today.

"This new logic extends outside gold and outside currencies. The real struggle between gold and paper is a struggle for power."

"Over the past year, central banks – which have been net sellers of gold – are now a new and increasingly important source of demand," says Aram Shishmanian, CEO of marketing-group the World Gold Council, commenting on Sri Lanka's announcement that it's been buying gold for its forex reserves.

Alongside China's 1054-tonne hoard reported in April – and India's 200-tonne purchase of IMF gold reported last week – "This latest announcement demonstrates that many central banks are reassessing their reserve asset management policies, both in traditional 'over weighted' [Western] countries as well as the key Asian central banks," Shishmanian believes.

For the world's No.1 reserve currency, in contrast, "There are indications that the US Dollar is now serving as the funding currency for carry trades," says the International Monetary Fund in a new report, pointing to the United States' record low interest rates and saying that financial speculators are borrowing Dollars and selling them to finance better-yielding investments elsewhere.

"These trades may be contributing to upward pressure on the Euro and some emerging-economy currencies," says the IMF's report.

"[The Dollar] has moved closer to medium-run equilibrium [but is still] on the strong side."

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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