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Gold Hits New Record High as IMF Economist Calls Inflation a Very Good Thing

Commodities / Gold and Silver 2010 Nov 05, 2010 - 10:14 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleTHE PRICE OF WHOLESALE gold bullion ticked back from a new US Dollar record in morning trade in London on Friday, setting a new all-time-high London Fix of $1384.20 per ounce after what one trader called Thursday's "phenomenal" gains.

European and US stock markets stalled after new data showed a surprise rise in US payrolls, but no change in the 9.6% jobless rate.


The Euro and Sterling both fell back from fresh 2010 highs vs. the Dollar, but oil rose and London copper prices came within 2.5% of 2008's pre-Lehmans' collapse peak.

Priced in British Pounds Sterling, Diapason Commodities index of commodities rose above its 2007 record, says the FT's Alpha blog.

Silver bullion this morning jumped above $26 per ounce – its 14th new 30-year high of the last 33 trading days.

"The bear trend is now so strong in the Gold/Silver Ratio that we would not rule out the 2008 low of 47.52 as a possible target," says Russell Browne at Scotia Mocatta.

The ratio of gold to silver prices today slipped beneath 53, a two-year low broken in only three short periods since the mid-1980s.

Meantime in India, "So far, gold sales have been super-duper throughout the year," says Darshan Zaveri, director of Manubhai Zaveri Ornaments in Ahmedabad, to India's Economic Times. But this week – starting with the Hindu festival of Dhanteras and culminating in the gold-buying festival of Diwali this weekend – "sales have doubled from 2-3 years ago, as rising prices have reinforced trust" in precious metals.

"We've definitely not seen a rush like that in the last two or three years," agreed a secure logistics executive to BullionVault by phone on Thursday, commenting on the three weeks to Monday.

Earlier still, cargo shipments of gold were "booming" to India – the world's No.1 consumer market – he said, even amid mid-Sept.'s typically quiet remembrance of the dead observance, Pitar Pak.

"It's interesting," says Dick Poon, Hong Kong manager for the German-based Heraeus refinery group. "There's not much scrap sold back into the market...[so] everybody needs to import to fulfill customer orders."

Here in the developed West, meantime, "What we're seeing now is a general shift in people's attitude towards things that are going to preserve their purchasing power over time, and gold is a natural beneficiary of this kind of activity in the market," reckons Blackrock's £2.8 billion Gold & General fund manager Evy Hambro, speaking to Reuters.

"If the Dollar continues to weaken, and/or long-term interest rates remain low, this will be supportive for gold prices," concurs the latest Commodities Weekly from Natixis bank.

But "A bit of inflation clearly would be very good, what we want to avoid is deflation," reckons Olivier Blanchard, chief economist at the International Monetary Fund, speaking to CNBC on Thursday after the Federal Reserve announced $600bn of new money creation for its QEII program.

"A weaker Dollar fits in very well with Ben Bernanke's reflationary strategy," says Gluskin Sheff economist David Rosenberg, warning that the Dollar's descent may quickly become "destabilizing".

"Risk assets from equities, to credit, to emerging markets have, in recent months, become correlated with a weaker US Dollar in an unprecedented fashion," he notes.

Gold's daily correlation with changes in the Euro/Dollar exchange rate remained strongly positive on Thursday at 0.67, but the connection slipped again from last month's two-year high above 0.96.

That figure would read +1.0 if gold and the Euro moved perfectly in lock-step together against the Dollar.

Amid this May's Greek deficit crisis, gold's correlation with the Euro sank to a 17-year low, hitting a near-perfect negative correlation of 0.92 as bullion rose but the single currency sank.

"ECB buying could stabilize the situation" in Irish government bonds, today's Irish Independent quotes Gary Jenkins at Evolution Securities, after Dublin's debt fell in price for the eighth day running – pushing 10-year yields up to a record 7.7% – despite the government "front-loading" the next four years of budget cuts into 2011.

Ireland's yield-spread over benchmark German Bunds widened further on Friday. The price of credit-default insurance on Irish bonds also rose.

"This is Ireland's last chance to impress," reckons Alan McQuaid, chief economist at Dublin's Bloxham Stockbrokers. "Failure to do so will have serious negative consequences."

The gold price in Euros recovered all of this week's earlier losses late Thursday, rising this morning to €31,650 per kilo and nearing its third weekly gain in the last month.

By Adrian Ash

BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

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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