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Gold and Commodity Prices Surge on Eurzone Inflation Data

Commodities / Gold & Silver Jan 04, 2008 - 10:12 AM GMT

By: Adrian_Ash

Commodities SPOT GOLD PRICES bounced on Friday from an early dip in London, recording an AM Fix of $858.75 per ounce – some 0.7% below Thursday's new all-time high – before touching $862 as the US open drew near.


"Gold has been pushed to record highs by oil up at $100 a barrel and fears of a recession," reckons Sasha Naryshkine, an analyst at Vestact in South Africa .

"An added investment boost is the weak Dollar," adds Reuters today, "which means Dollar-denominated gold is relatively cheaper in other currencies."

But pricing gold in Dollars is merely a convenience for the global investment business – and Gold Prices in all currencies barring the Japanese Yen now stand at all-time records, too.

British investors Buying Gold at BullionVault on Thursday saw it breach £439 bid in Zurich . For French, German and Italian investors, the Gold Price in Euros touched €589.50 per ounce, a rise of 21% from this time in Jan. '07.

"After the clear breach of $850 we could well see $900 as the next target and that could be taken out quite soon," said Phillip Klapwijk, head of the much-respected GFMS consultancy, to Miningmx yesterday.

"It becomes bit of a momentum trade now, and if people see this all-time high beaten you could see people set their sights on $900 and rally up to that level as an initial target."

With the Gold Price in Dollars gaining 8.5% in the last month alone, several analysts now advise caution. "Any downturn could quickly accelerate due to protective sell stops that could be triggered from traders who have taken out their long positions during the most recent stages of the rally," says today's market note from the Chicago Board of Trade (CBOT).

"We are concerned that gold is vulnerable to a nasty correction," says John Reade at UBS in London . "After all, we consider the metal to be $100 to $150 per ounce above near-term fundamental value.

"The current Gold Price is not supported by supply and demand fundamentals," Reade believes, despite the continuing dearth of large new gold-mining deposits and soaring jewelry demand in China and South-East Asia .

"Short-term price corrections aside," says Kevin Norrish at Barclays Capital, "we would view these in the context of what remains a strong medium-term uptrend for gold.

A pullback in the Gold Market to $850 or below would represent a significant "buying opportunity" says Robin Wilkin, technical analyst for currencies & commodities at J.P.Morgan.

In the broader financial markets, Tokyo stocks sank 4% to reach a 17-month low as the Yen held near one-month highs vs. the Dollar, making Japanese exports more expensive for both US households and Dollar-pegged consumers in Asia .

Gold futures traded at the Tocom for delivery in Dec. '08 ticked ¥5 lower to ¥3,055 per gram – equal to $868.94 per ounce.

The Euro held in a tight range vs. the US Dollar at $1.4731, meantime, while the British Pound added nearly a cent to $1.9800 on news that borrowing by UK consumers rose 8.8% in Nov. from a year before – slower than Oct.'s 9.1% rate of growth, but in line with analyst forecasts.

Borrowing by financial businesses including stock brokers and hedge funds rose 23.8% year-on-year, ahead of the 12-month average and nearly twice the rate of growth averaged over the last decade.

US crude oil for delivery in Feb. added 11 cents this morning to $99.27 per barrel, while copper and zinc both rose "limit up" in Shanghai, causing a temporary break in trading after gaining 4% for the session. Soybean futures hit a fresh 34-year high, rising for the third day running alongside corn and wheat.

The unrelenting rise of commodity prices kept consumer-price inflation in the 13-nation Eurozone at 3.1% in Dec. said the EuroStat agency this morning, matching Nov.'s record high and remaining far in excess of the region's official target of 2.0%.

European stocks were mixed in response, holding flat by lunchtime in Paris after the Royal Bank of Scotland's purchasing managers' index for Dec. showed the slowest rate of growth in European services since June 2005. Eurozone bond prices had already risen strongly this week, and today's inflation data failed to prevent the yield on 10-year German bunds losing 16 basis points from the end of last month to reach 4.18%.

Two-year yields have lost 18 basis points to 3.77% so far in 2008, but with Eurozone inflation holding at that record high, a majority of economists surveyed by Bloomberg News now believe the European Central Bank will be forced to hold its target interest rate at 4.0% when it meets next Thursday.

The first indication of US price inflation in Dec. will come with the release of the Import Price Index – last seen at a record 11.4% year-on-year – on Friday next week (Jan. 11).

Today, meantime, brings the much-awaited Non-Farm Payrolls data for last month, expected to show a slight decline. So too are average US hourly earnings.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 2007

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.

Adrian Ash Archive

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