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Gold Rises as Funds Scramble for Safe Assets

Commodities / Gold and Silver 2010 May 26, 2010 - 01:27 PM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD in wholesale dealing rose throughout Asian and London trade on Wednesday, touching 1-week highs above $1215 an ounce as world stock markets bounced from their recent plunge.

Crude oil also rallied, regaining $70 per barrel. Silver prices caught up with gold, rising 3.3% from last week's finish to $18.68 an ounce.


"Support [in gold] still at the April high, continues to limit the downside," reckons Phil Smith in his Reuters Market Technical Analysis from Beijing, noting the sharp rally in gold from last Friday's drop to $1178.

Exchange-traded gold trusts are seeing "massive inflows given the current economic climate," says one London dealer.

New York's SPDR gold ETF added more than 30 tonnes of metal to its holdings on Tuesday, the sharpest increase both in absolute and percentage terms since the US stock market plunged towards 12-year lows in Feb. 2009.

"Gold demand in both India and China was very strong and achieved higher volumes in the first quarter of 2010 compared to 2009," reports the World Gold Council in its latest Gold Demand Trends.

China's 22% rise in Jan-March demand – and the 700% rise in India's household Gold Buying – came "in spite of higher local currency gold prices [because of] strong economic growth," the mining-backed marketing group notes.

"This suggests that consumers are becoming accustomed to higher prices.

The Bombay Bullion Association today said that gold imports rose a further 71% last month compared with April 2009's sharp drop to just 20 tonnes.

"In times like, these investors want safety," writes Steven Barrow, chief currency strategist at Standard Bank in London. "Issues of value and yield tend to fall by the wayside.

"Perhaps there are too few 'safe' assets relative to the very high levels of liquidity that the [Western] central banks have pumped into the market...The list seems to stop at Treasuries, gold and central-bank deposits."

Major economy government bonds fell hard on Wednesday, reversing Tuesday's "safe haven" jump and driving longer-term UK gilt yields fully 0.10% higher on the day to 4.05%.

The 16-nation Euro currency also gave back Tuesday's gains, falling two-cents towards last week's four-year lows below $1.22.

Gold priced in Euros rose towards this month's all-time record highs above €32,000 per kilo.

The gold price in Sterling also rose sharply, hitting one-week highs above £840 an ounce.

"Greece, in my view, will eventually default, and so Germany and France will have to find a way to let Athens default without bringing down the banking system," says Josef Joffe, publisher of Germany's Die Zeit magazine.

"Orderly insolvency is not supposed to kick out Greece, but to keep it in."

US Treasury secretary Tim Geithner – an architect of the "Asian Contagion" rescue in the late 1990s, and head of the New York Fed during the Lehman Brothers collapse – said after meeting new UK counterpart George Osborne in London today that the €750 billion 'stabilization' plan agreed by European leaders "has got all the right elements.

"What markets want to see is action."

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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