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Gold Surges Higher as Dollar Falls vs. Stocks and Euro

Commodities / Gold & Silver 2009 Mar 13, 2009 - 08:46 AM GMT

By: Adrian_Ash

Commodities THE PRICE OF SPOT GOLD leapt in late-morning London trade on Friday, erasing nearly all of this week's 5% drop for US and UK investors, but falling straight back an hour later as New York opened for business.

World stock markets meantime rose sharply once again, closing more than 5% higher in Tokyo.


Crude oil rose towards $48 per barrel, as the US Dollar slipped against all major currencies bar the Yen, dropping to a 3-week low vs. the Euro.

"Even though we've had such good gains" in stocks, noted Cleveland Rueckert, a market analyst at Birinyi Associates in Stamford, Connecticut, to Reuters overnight, "it could just be short-covering.

"Most people in the market are short-term traders right now and you're not really seeing the accumulation of stocks."

Government bonds fell back as world equities pushed upwards early Friday, knocking the yield on 30-year German bunds sixteen basis points higher to 3.95%.

Yesterday the US Treasury sold a fresh $11 billion of its 30-year debt, receiving bids for 2.4 times the bonds on offer but sparking fears that prices would be much lower – and interest-rate yields much higher – "were it not that the Federal Reserve may become a buyer of Treasuries themselves," as one strategist put it.

Urging a return to the easy leverage and loose liquidity of the last decade, "We need to boost [economic] demand through a range of measures," says UK finance minister Alistair Darling today, writing in the Wall Street Journal ahead of April's G20 summit of industrialized nations:

"Monetary loosening, fiscal stimulus, and restoring bank lending."

This week the Bank of England began " Quantitative Easing " in a bid to boost credit supplies in the UK, creating new money to buy £2 billion of government bonds.

With one-third of UK gilts held by foreign investors, however, "The feedback from the auction is that [domestic] pension funds and hedge funds did not sell," says Danny Gabay, a former Bank of England official and now a consultant at Fathom Consulting in London.

"That means the quantitative easing is going to do [the UK economy] less good" as the new cash goes overseas.

Measured against the Japanese Yen today – the world's strongest currency during the asset-price collapse of 2008 – Gold Bullion meantime jumped 3.2% at the Tocom Exchange in Tokyo.

Recovering its level of this time last year, the Gold Price in Yen has now risen 48% from the 31-month low it hit in October.

"We're seeing the purchasing power of money eroded," said one RBS analyst in London to Bloomberg this morning.

"As the recession bites, people want access to real money and there's no higher real money than gold."

In Switzerland today, where the Swiss National Bank said this week it will start selling Francs on the open market to try and depress their value, new data showed import prices falling faster than expected last month, down 1.8% in Feb. after falling 0.9% in Jan.

Retail sales in the European monetary zone rose less quickly than analysts hoped, meantime, but Labor Costs for the end of 2008 showed a sharper than expected rise of 3.8% year-on-year.

US import prices fell 0.2% in Feb., the Labor Dept. said Friday morning, much less than Jan.'s 1.1% drop and slower than the 0.8% drop forecast on Wall Street.

Overall, the United States recorded a $36 billion trade deficit for January, pumping out less than two-thirds of the dollars spent overseas compared with Jan. 2008.

"Only when we have confidence can we have courage and strength, and only when we have courage and strength can we overcome difficulties," said Chinese premier Jiabao Wen at the close of a 9-day parliamentary session this morning.

Speaking in Beijing, Wen hinted that any dip in China's GDP growth below 8% would spark a fresh stimulus package on top of the half-trillion-dollar program already begun.

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 2009

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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