Gold Acting as "Barometer" of Global Currency Devaluation
Commodities / Gold and Silver 2010 Sep 24, 2010 - 09:28 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD came within 80¢ of $1300 an ounce Friday morning in London, with front-month gold futures in New York breaching that level, as trader-room rumors said the central banks of both Japan and Switzerland were actively selling their own currencies to depress them on the forex market.
US crude contracts oil rose back above $75 per barrel. World stock markets rose as the Dollar fell on the currency market.
Silver prices broke fresh three-decade highs above $21.40 an ounce.
"There is not a country in the world that wants a firmer domestic currency," says Kamal Naqvi, head of commodity sales at Credit Suisse, speaking to the Financial Times today.
"The result is devaluing currencies against hard assets, and gold is the obvious barometer of that. The thesis of competitive devaluation as a driver for gold has become much more accepted by the mainstream."
Just after lunchtime in Tokyo – which re-opened for business today after the autumnal equinox holiday – the US Dollar spiked almost ¥1 towards the ¥85.50 level achieved by last week's Bank of Japan intervention, now estimated around $21 billion.
The Dollar quickly fell back to unchanged, however, and the Bank didn't comment.
"There's also been talk that the Swiss National Bank is buying Euros this morning," said one London bullion dealer in a note, even as a new SNB survey said only a quarter of Swiss companies have suffered lower sales because of the rising Franc.
Eurozone investors wanting to buy gold today saw the price fall back towards €31,100 per kilo, while the single currency re-visited 24-week highs above $1.34 on the forex market.
By lunchtime in London, gold priced in Dollars stood 1.8% higher from last Friday's finish. The gold price in Euros stood 1% down for the week.
"There the danger of a protectionist backlash" if each of the world's big central banks seeks to depress their own currencies in "unilateral action", says The Economist magazine today.
"It will also make it much harder to elicit further action from China, the country whose currency regime distorts the global economy most. The rich world needs reflating but the world economy also needs rebalancing. And that demands a weaker Dollar."
So far this year, the Yen has risen 9.5% against the Dollar. Kept inside a tight trading-band set by the People's Bank, in contrast, the Chinese Yuan has risen by only 1.4%.
In the first half of 2010, Beijing used some $20 billion of its $2.4 trillion foreign currency reserves to buy Japanese government bonds.
Beijing today denied a New York Times report that China is blocking exports of rare earth metals to Japan, but Tokyo's finance minister repeated the claim.
"[Coming] economic data will be closely scrutinized to get an idea about the timing of possible Fed action," reckons Commerzbank analyst David Schnautz, speaking to Bloomberg ahead of today's US Durable Goods Orders report, which showed a 1.3% drop in August from July.
In US Treasury bonds, now completing their strongest week's performance since the 'safe haven' buying of May's Eurozone debt crisis, "The Federal Reserve may be more active on the buy side," Schnautz's believes.
"We don't know how close they are to the trigger point" for fresh quantitative easing.
By Adrian Ash
BullionVault.com
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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
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