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Gold Support "Increasing" After Fed Sticks at Zero, China Told to Raise Rates

Commodities / Gold and Silver 2010 Mar 17, 2010 - 09:16 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleTHE PRICE OF BULLION gold in the wholesale London market touched a 7-session high against the Dollar early on Wednesday, slipping back as US inflation data came in tamer than expected, and China was advised by the World Bank to tighten its interest rates.

The Euro rose to its best Dollar-value in almost 5 weeks after the Federal Reserve maintained its zero-rate stance in Tuesday's policy announcement.


US crude oil contracts meanwhile rose above $82.50 per barrel after Opec oil-cartel ministers meeting in Vienna kept their output quotas on hold.

"Good demand, reliable supply, beautiful prices – we are very happy," said Saudi oil minister Ali al-Naimi to reporters.

Back in the gold market, "support is increasing," said Standard Bank's chief commodities analyst Walter de Wet on Wednesday morning.

"We have seen increased physical buying interest on approach of $1100."

"Gold prices moved higher on [last night's] Fed announcement, but failed at $1132," says a note from another London dealer, "where its trendline from [the record $1226 set in] December comes in today."

Slipping back to Tuesday's finish at $1124 an ounce, the gold price also fell vs. the Euro and dropped more than 1% for UK investors – down to £737 an ounce – after minutes from the Bank of England's latest policy meeting showed growing unease over the "stickiness" of consumer-price inflation.

Factory-gate prices in the US rose less quickly last month than Wall Street economists forecast, but the annual rate of increase held steady from Jan. at 4.4%.

"Investors are buying back gold after the Fed decided to keep interest rates unchanged," a Hong Kong dealer told Reuters earlier.

Even at this morning's higher prices, "There's not a significant amount of scrap being returned," he added.

Silver prices today turned lower just beneath last week's two-month high of $17.69 per ounce.

Over in India – home to the world's No.1 private consumers of gold bullion – "Sales jumped noticeably on Monday," says Swiss bank UBS. "Our current five-day moving average of sales [to India] is more than 30% greater than the year-to-date average."

Tuesday marked the start of spring on the Hindu festival calendar – "auspicious days to buy gold," says Reuters. Next month will bring the wedding season, culminating with May's gold-buying holy day of Akshaya Thritiya.

New data compiled by the World Gold Council meantime showed today that emerging-market nations grew their state-controlled gold reserves at a near-record pace in 2009.

Thanks to China's data revision, India's 200-tonne purchase of IMF gold, and Russia's "accelerating" acquisition of domestic mine production, sovereign states outside the OECD club of developed economies now control 21% of the world's total central bank reserves, says analysis by BullionVault – almost twice the previous 60 years' proportion.

(Get the full story on He Who Holds the Gold here...)

"[China's] macro stance needs to be noticeably tighter than in 2009 to manage inflation expectations and contain the risk of a property bubble," said the Washington-based World Bank in a new report today.

Tuesday saw 130 members of the US Congress publish an open letter to President Obama, warning that "The impact of China's currency manipulation on the US economy cannot be overstated.

"Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors."

"If the exchange rate issue is politicized, then in coping with the global financial crisis this will be of no help in coordination between the parties involved," countered China's commerce spokesman Yao Jian at a scheduled news conference today.

"[China's] trade surplus is not caused by the exchange rate. The trade surplus is an outcome and phenomenon of globalization. It will exist for a time."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly 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 2010

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.


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