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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold New High As Investors and Central Banks Scramble for the Ultimate Safe Haven

Commodities / Gold and Silver 2010 Jun 21, 2010 - 07:38 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleTHE PRICE OF WHOLESALE gold bullion rose to a second all-time high vs. the Dollar in two days overnight Monday, touching $1265 an ounce as world stock markets rose sharply on China's weekend promise to "enhance [the] exchange rate flexibility" of its Yuan.

The AM Gold Fix in London was set at $1259.50 an ounce, some 13% higher for 2010 to date.


"Pull backs [in gold] should be shallow," says one London dealer.

"Whenever the metal reaches new highs, we might see some profit-taking and producer selling," agrees Walter de Wet at Standard Bank.

"[But] with gold above $1250, we believe the path is now set for the metal to test $1280."

Over in the bond market on Monday, German and US government debt slipped in price as equities rose, nudging 10-year yields up to 2.75% ad 3.28% respectively.

The Euro held near its best Dollar rate in 4 weeks around $1.24.

Sterling touched a new 6-week high of $1.49, pushing the price for UK investors wanting to buy gold back below £850 an ounce by lunchtime in London.

Hong Kong's Hang Seng stock index closed the day 3.0% higher, and Tokyo's Nikkei added 2.4%, as traders reacted to Saturday's news from Beijing, the timing of which "is hardly accidental" according to Stephanie Flanders, the BBC's chief economics correspondent.

This week brings the G20 meeting of leading economy politicians in Toronto. The People's Bank – the world's No.1 central bank by currency reserves, and the fifth largest gold holder –has been accused by US politicians of unfairly holding the Yuan too low so as to steal export share from other nations.

The PBoC has yet to say what "flexibility" will mean.

Last week also brought news that Saudi Arabia's official gold reserves are twice the level previously announced, rising to 14th in the league table of sovereign-state central bank hoards at 323 tonnes.

"The official sector will be a net buyer of gold this year," reckons UBS precious metals strategist Edel Tully.

"If there is any theme to the bullion rush, it is fear that the global currency system is unravelling," says Ambrose Evans-Pritchard in The Daily Telegraph.

"Or, put another way, gold itself is reclaiming its historic role as the ultimate safe haven and benchmark currency."

The volume of gold needed to back shares in the SPDR Gold Trust ETF crept one tonne higher last week to a new record of 1307 tonnes.

New data, released after Friday's close, showed the speculative position in New York gold futures and options rising but remaining well-below record levels in the week to last Tuesday.

Equivalent to 984 tonnes of gold bullion, the leveraged "net long" position held in Comex derivatives by hedge funds and other non-industry players hit an all-time peak of 1021 tonnes in Oct. 2009.

"Gold has once more returned to its true role – the ultimate safe haven," says the latest Fortis Bank Nederlands Metals Monthly, produced by London consultancy the VM Group.

"That won't change until three factors coalesce," it says, pointing to individual governments dealing with their debt issues "effectively and in unanimity", plus a firm US economic recovery, and proof that emerging-market growth – "China especially – is not going to be derailed."

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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