Daily London Gold Market Report - Gold Rallies to 8 Week Peak

By: Adrian_Ash

GOLD PRICES rose nearly 1% by mid-morning in London on Thursday, reaching $673 per ounce by the Morning Fix – the highest fix in US Dollars since May 14th.

Priced against Euros, gold hit a one-month high at €486.90 per ounce, and the metal was rose 0.8% from Wednesday evening against the Pound Sterling. Fixed at £328.18, the metal then rose further as the Pound slipped on the currency markets.

Indeed, commodity prices rose across the board early Thursday, led by tin hitting an all-time high and notching up a 100% gain since the start of this year. Brent crude oil traded in London rose for the third session running to reach $77.34 per barrel.

With global food prices already up by 23% since the start of 2006 according to the International Monetary Fund – and the Baltic Dry index of shipping costs hitting a record high last week – inflationary pressures may continue to grow after Beijing today reported that China's economy grew by 11.9% annualized between April and June, a near-12 year high.

"The figures put China on course to chalk up its straight fifth year of double-digit growth," reports the Financial Times, "and to overtake Germany as the world's third-biggest economy – perhaps as soon as this year."

Overnight in Tokyo , gold futures for delivery in April '08 ended the day 0.7% higher against the Japanese Yen, closing at the equivalent of $677.10 per ounce.

The Nikkei stock market index also rose, adding 0.6% for the day but remaining nearly 200 points shy of this year's peak at 18,116.

European stocks bounced higher as mining stocks rose alongside metal prices. By lunchtime in London the FTSE Eurofirst 300 index stood 0.8% higher. Wall Street futures pointed higher after Continental Airlines surprised analysts with a 15% increase in quarterly earnings on the back of growing demand for trans-Atlantic flights.

Bank of America said that its earnings per share rose 7.5% in the second quarter, but the financial sector may suffer fresh jitters after a report in today's Wall Street Journal says the tax authorities are investigating the possibility that US hedge funds used complex credit derivatives to evade tax.

"It doesn't look like gold is going to sell off to a great extent in the near term," reckons George Gero at RBC Capital Markets, "no matter what.

"Everywhere you look in the world, it's a new minefield geopolitically [and] people who are concerned about holdings in dollars are diversifying generally into gold."

Japanese investors will be able to track the gold price – if not actually own the metal – when Osaka 's stock exchange launches the country's first exhange-traded gold fund next month. StreetTracks GLD, the largest of the world's current gold ETFs, reported yesterday that the gold it holds in trust on behalf of investors has grown by nearly 5% in the last two weeks.

"We certainly had a flight to safety Wednesday," says Bill O'Neill of Logic Advisors in California to Reuters, "and for a change, gold did attract some of that demand. A lot of it is related to the subprime issue."

Chairman of the US Federal Reserve Ben Bernanke will continue his two-day testimony to the US Congress. "Bernanke's speech [yesterday] indicated that even though inflationary pressures were the Fed's primary focus, issues in the housing sector may weigh on US economic recovery," says Brandon Lloyd in today's gold note from Mitsui.

"Now both the technical & fundamental schools of thought support a move higher in gold with $685 trend line resistance the next target."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Gold prices live | Latest gold market news
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 2007

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