Gold Jumps on Obama Infrastructure Rebuilding Plan
Commodities / Gold & Silver Dec 08, 2008 - 08:18 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD eased back from a sharp 2.8% gain for Dollar investors early in London on Monday, trading flat against Sterling and Euros after US president-elect Obama promised to "jump start" the economy with huge government spending and debt.
"We can't worry short term about the deficit," Obama told NBC's Meet the Press on Sunday, despite noting that his program of electric shocks will take the budget shortfall over $1 trillion.
World stock markets leapt in response at Monday's opening, adding 9% in Hong Kong and 7% in Frankfurt, with soft commodities and base metals also rising fast.
Treasury bond prices fell sharply as money poured out of government debt, but the 14-point jump in 5-year US yields still left them way down at 1.83% per year.
Crude oil meantime bounced more than 5% from Friday's new four-year lows after Chakib Khelil – president of the Opec oil cartel – warned of "significant" output cuts on Saturday.
"We've got to make sure the economic stimulus plan is large enough to get the economy moving," Obama continued in Sunday's interview, just as one of Detroit's largest churches meantime held prayers for the auto-makers' bail out.
A local dealership donated hybrid SUVs built by Ford, GM and Chrysler to park inside the church, just behind the pulpit.
Obama meantime repeated his call for a tax-hike on earnings above $250,000 p.a., before admitting that he's failed to quit cigarettes but will abide by the White House smoking ban, imposed by Hillary Clinton when she was First Lady.
" Gold 's gain is all currency related and because of Obama," said Gerry Schubert at Fortis Bank in London to Bloomberg this morning.
"The Euro is gaining against the Dollar and that supports Gold ."
Monday morning saw the Euro jump almost 2¢ to a ten-session high as forex traders sold the Dollar to get "Clear!" of Obama's defibrillator.
Even the British Pound out-ran the greenback, adding 3¢ to $1.5050 despite suffering its clogged arteries, now blocked by more than £1.5 trillion of household debt and more than £1 trillion for the state (US$3.75trn all told).
The Gold Price in Sterling held below £516 an ounce. French, German and Italian investors wanting to Buy Gold today saw it stay beneath €600 an ounce.
"We believe precious metals and specifically gold may start to look more appealing in the first half of next year if deflation risks start to become more apparent in the US," says a new report from Deutsche Bank, pointing to a willful Dollar devaluation by the authorities to stimulate the economy.
Latest data from the US commodity futures regulator, however – released after Friday's close – showed fresh "demand destruction" amongst leveraged speculators playing the gold market on credit.
Open interest in the Gold Futures and options market sank yet again in the week-to-last-Tuesday, down for the sixth week running to 385,000 – barely one-half the open interest of March 18th, when the Dollar Gold Price peaked above $1,000 an ounce, and its lowest level since June 2006.
The Gold Price , in contrast, has risen 27% in the last two-and-a-half years.
On the data front today, Japan's reported a record low in service-sector sentiment, as did investor sentiment in Europe, as measured by the monthly Sentix index.
German industrial output shrank 3.8% in Oct. from the same month in '07. Input price inflation for UK businesses eased back to 7.5% year-on-year in Nov., but the sharp fall in oil prices was offset by further increases in chemical and transport costs.
There were no major data releases due in the United States.
By Adrian Ash
BullionVault.com
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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
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