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Gold Jumps as America Votes

Commodities / Gold & Silver Nov 04, 2008 - 07:47 AM GMT

By: Adrian_Ash

Commodities THE PRICE OF GOLD jumped into the Wall Street opening on Tuesday, adding to an overnight rally and touching a 5-session high of $745 an ounce as European stock markets rose for the seventh-day running.

The US Dollar slipped back ahead of today's presidential election, losing 2.5¢ to the Euro and reversing half of Monday's gains vs. the Pound Sterling.


For British investors looking to Buy Gold today, the price rose to four-session highs above £465 an ounce. The Gold Price in Euros held below €578.

"There's some physical demand from investors in Asia and Europe," according to Dick Poon, head of precious metals trading in Hong Kong for Heraeus, the German-owned refining group.

"They are seeking to divert some of their assets into gold as they continue to worry about paper currencies and the banking system in general."

Today in London the Royal Bank of Scotland – which led the world's biggest-ever banking takeover in 2007, buying Dutch bank ABN Amro for €70 billion (then $100bn) – reported a £206 million write-down ($330m) for the third quarter.

That added to its £5.9 billion cuts ($9.4bn) from the first half of the year.

Looking to join RBS in raising private capital – and thus escaping the low-bonus, no-dividend rules of the UK government's bail-out – Lloyds TSB is said to be negotiating with ten sovereign wealth funds from the Middle East and Asia.

The UK's largest mortgage lender – Spanish-owned Abbey – today raised its interest rates by 0.5%, despite expectations that the Bank of England will cut UK base rates to a four-and-a-half year low of 4.0% on Thursday.

Across the Channel in Paris, the French prime minister threatened to "change managers and assume control of strategy" if the country's private banks do not start lending freely to households and business.

The Reserve Bank of Australia this morning slashed its key lending rate by 0.75% to a near-seven year low.

"All countries in the world have been printing money, the United States in particular," said legendary commodities investor Jim Rogers – co-founder of the Quantum Fund with George Soros in the mid-1970s – to a meeting of private investors in Amsterdam late last week.

"That created a huge amount of money, resulting in the icing on the cake for commodity prices. But fundamentally you have to look at supply and demand.

"The oil supply will fall with 6 to 9% each year, according to the International Energy Agency. The demand for oil will increase in China and developing countries. This has nothing to do with economy, the market is simple. It is simply the law of supply and demand."

"People don't understand that there is a huge bull of commodity prices on the way. We will have to deal with high inflation."

In the commodity markets today, however, crude oil struggled below $64 per barrel, while soft commodities and base metals held flat after last month's record volatility.

The CRB-Reuters index of the world's 19 most heavily traded raw materials dropped 1.5% to stand almost one-half below its peak of June.

"The [platinum-group metals] do not look like putting in any significant rallies in the short term," says this morning's note from Mitsui, the precious metals dealer in London.

"Global economic data continues to disappoint, with poor US auto plunging by 32% in October to the lowest levels for 25 years. Poor figures were also seen in Europe – Spain down 40% and Italy down 19%."

"There is currently no bullish news for PGM," agrees Walter de Wet for Standard Bank in Johannesburg. "The latest vehicle sales data will keep the metal under pressure.

"On the production side, labor unions in South Africa indicated that Lonmin might lay off workers because of low PGM prices," says de Wet, adding that current price levels now make production cuts "inevitable".

Gold Mining companies are already delaying and moth-balling new exploration, with Mark Cutafini – CEO of AngloGold Ashanti, the world's third largest Gold Miner Stock – setting "something in the order of $900 to $1,000 an ounce" as the price needed to encourage new investment in digging up the metal.

Gold production in Zimbabwe – formerly Africa's third-largest producer – has the "been brought to its knees" by bad government policy said the Chamber of Mines in an email last night.

Annual inflation, fueled by the money-printing Zanu-PF government of Robert Mugabe, has now reached 231 million per cent according to Reuters.

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 2008

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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