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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Seen Nearing Cyclical Peak

Commodities / Gold and Silver 2011 Mar 23, 2011 - 11:26 AM GMT

By: Adrian_Ash


THE PRICE OF PHYSICAL gold bullion rose sharply against all major currencies on Wednesday morning in London, touching near-two-week highs against the Dollar even as the US currency rose amid fresh European debt and budget concerns.

Crude oil and world equity prices were little changed, but major-economy government bonds rose as UN air-strikes continued in Libya, targeting loyalist Gaddafi troops attacking the rebel-held town of Misrata.

West Jerusalem saw 20 people killed in a bomb attack on an Israeli bus. The Japanese authorities warned of raised radiation levels in Tokyo tap water.

"Although it still remains relatively weak," says Standard Bank's daily note, "[the] moderate strengthening in the Dollar has reduced the safe-haven appeal of precious metals.

"Considering that the tensions in the MENA region continue and that the Japanese crisis remains a concern, this lack of interest could point to a future bout of profit-taking."

"Flows were lacking" overnight in Asia's physical gold bullion market, local traders agreed, with one Hong Kong dealer calling precious-metal volumes "pathetic".

US gold futures, in contrast, now represent "a very tight, congested market," reckons Jeffrey Christian of New York's CPM Group consultancy, "and over the rest of March and into the first week of April, those people who were short 23 million ounces of gold in the Comex April contracts have to either buy those contracts back, roll them forward [into the June contract] or find physical metal to deliver into them.

"All three of those actions have the effect of driving the gold price up on a temporary basis," Christian tells South Africa's MineWeb in an interview.

Added to the Middle East and Japanese turmoil, "That's another reason why we think that we may be approaching a cyclical peak in the next few weeks."

Over on the currency markets Wednesday morning, the Euro slid 0.8% vs. the Dollar from Tuesday's new 2011 high, as borrowing costs for both the Irish and Portuguese governments rose back towards record levels in the bond market.

Greek prime minister Papendreou told Stern magazine that restructuring Athens' debt "would probably lead to the collapse of Greek banks," and claimed that German taxpayers would profit from the financial aid they're making via the stabilization fund being discussed this week.

The gold price in Euros rose to unwind almost the last few cents of last week's 2.0% drop, however. The stabilization fund meetings may simply delay an expansion of the union's Stability Fund until June, banking analysts warned.

Portuguese prime minister Socrates meantime faced a vote against his government's debt-reduction plans, while UK chancellor Osbourne's heavily-trailed second budget speech for the coalition government failed to stem a sharp fall in Sterling.

Now faced with CPI inflation of 4.4% per year, the Bank of England – charged with targeting inflation of 2.0% – today said this month's decision to hold base rates at 0.5% was an exact repeat of Feb., with the voting committee split the same four ways.

The gold price in Sterling rose sharply, up by 1.3% to near 1-week highs at £882 per ounce.

"Maybe some tail risk protection is advisable still even after all the recent events in MENA and Japan," says analyst Charlie Diebel at Lloyds TSB in London, noting that US Treasury bond yields have recently fallen below German equivalents.

"The last sustained period where T-Notes traded through Bunds was in 2008/09 and prior to that in 2002/03 and the big bond sell off in 1994."

Following claims that Colonel Gaddafi is using Libya's gold reserves to pay his mercenary army, the US Treasury said last night that if Libyan oil facilities "come under different ownership and control" from the regime, it "may consider authorizing dealings with such entities" – giving the rebels a source of funds from Africa's third-largest crude oil production.

By Adrian Ash

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 , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

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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