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Gold Hits New Dollar & Sterling Records, Fundamentals "Very Supportive"

Commodities / Gold and Silver 2011 Apr 19, 2011 - 09:25 AM GMT

By: Adrian_Ash

Commodities

THE WHOLESALE PRICE of physical gold rose again in London trade on Tuesday, hitting fresh record highs for both US Dollar and British Pound investors after yesterday's "negative watch" announcement on US government debt from ratings agency Standard & Poor's – a "shot heard round the world" according to one London bullion dealer.


Asian stock markets closed Tuesday lower, but European equities rose.

US Treasury bond prices actually rose, despite S&P forecasting "at least" a one-in-three chance it will downgrade the United States' long-term debt from AAA status by 2013, unless Washington cuts its deficit spending.

The Dollar knocked the Euro currency almost 4¢ lower as "peripheral Europe" government debt fell yet again.

"You really have to wonder how anyone can write with a straight face that this warning caused other market movements," says Princeton professor and Nobel laureate Paul Krugman of the S&P announcement.

"A significant push toward fiscal austerity would lead to lower growth," replies Jan Hatzius at investment bank Goldman Sachs, "and lower growth would lead to easier monetary policy for longer."

"Gold is re-asserting itself as an alternative currency," London-based mining-fund manager Evy Hambro of Blackrock was quoted by Bloomberg TV this morning.

"On a 3-to-5 year period," said Hambro, noting the key drivers for investors to buy gold, "the underlying trends are all very supportive of today's pricing and higher."

The price of gold in Euros also held onto Monday's sharp gains today, trading near to last night's 14-week highs at €33,800 per kilo – less than 1% below Dec. 2010's all-time high.

UK investors looking to buy gold saw the price touch £920 per ounce,  a new all-time high.

"We see some selling interest today on profit-taking, but not in large volume," a dealer told Reuters overnight in Hong Kong, where premiums on large wholesale gold bars ticked up to $1.50 per ounce above London's benchmark pricing.

"There is so much news that is in favour of gold," the newswire quotes a Singapore dealer.

"Gold is still the safe-haven of choice."

In Tokyo today, fiscal-policy chief Yosano and finance minister Noda of Japan – the world's second-largest holder of US government debt after China – both called US Treasury bonds "attractive".

"This is a timely reminder of the seriousness of America's fiscal issues, for the country and for the rest of the world," says bond-giant Pimco's chief investment officer Mohamed El-Erian.

As Helsinki today moved to form a new government including the "no bail outs" True Finns party, which won almost one-fifth of the votes in Sunday's Finnish election, Portugal's 10-year bond yield today rose above 9.0%, worsening the pressure for a swift IMF-Eurozone rescue.

"Spain, Italy and Belgium had been shielded from the events in Greece, Ireland and Portugal for a long time," said Christoph Rieger, fixed-income strategist at Commerzbank, to Bloomberg TV this morning.

"But with risk events culminating over the last few days, and also [new debt auction] supply lined up for later this week, we're seeing increasing contagion [in their] bonds."

Silver prices meantime held firm but failed to set a new 31-year Dollar high for the first session in four on Tuesday, trading just above $43 per ounce.

"[Selling silver short] natural with these giddy prices," one London trader told the Platts news service on Monday. "Speculators are going to have to take profits soon.

"Shorts have been burned in the run-up, but keep coming back for more," he said, forecasting a $10 silver price drop in short order.

But "Gold and silver prices are likely to continue to climb higher in reaction to inflation concerns," retorts HSBC senior analyst James Steel, "buoyed by rising food and energy prices, renewed European Union sovereign risks, and disagreement among top policymakers as to how to cope with the global crisis."

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 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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