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Gold and Safe Havens Tumble as Commodities and Stocks Rise

Commodities / Gold & Silver 2009 Apr 06, 2009 - 08:09 AM GMT

By: Adrian_Ash

Commodities THE SPOT-MARKET PRICE of physical gold fell to a 10-week low against the US and Canadian Dollars in Asia on Monday, falling 2.5% as world stock markets rose again and commodity prices reached a four-month high.


Versus all other major currencies except the Japanese Yen, gold fell to an 11-week discount, hitting €644 for European investors – almost one-fifth below Feb.'s record high – and falling nearly 3% to £586 an ounce against the British Pound.

For UK investors now Ready to Buy  Gold , that was more than 16% below Feb.'s top of £700 an ounce.

"A disappointing close by gold in both weekly and daily charts last Friday enticed follow-through selling as soon as [electronic platform] Globex opened," says the Mitsui Bussan team in Hong Kong today.

"Most of the selling of gold was executed in Globex but a major bank was seen as an aggressive seller near $881 in the [over-the-counter] market as well.

"The selling did not subside until noon [local time], but then Europeans decided to join the bearish camp."

Here in London on Monday, the FTSE100 stock index rose 0.9%, adding value for the 15th out of 23 sessions from last month's 5-year low.

Tokyo's Nikkei index ended the day 1.2% higher, while the Japanese Yen – the strongest "safe haven" asset during the turmoil of 2008 – sank on the forex market to a five-month low against both the US Dollar and single-currency Euro.

Government bonds were also sold lower as money moved into equities, knocking the yield offered by 10-year Australian debt sharply higher to 4.61%.

"Investment-grade credit spreads have contracted," says Manqoba Madinane in today's precious metals comment from Standard Bank, noting that the extra yield offered by 5-year US corporate bonds was squeezed one-tenth of a per cent lower on Friday.

Monday morning also saw raw materials prices rise sharply once more, with crude oil bouncing above $53 per barrel as soybeans and wheat prices both hit a two-month high.

Copper and zinc contracts traded at the London Metals Exchange hit a 5-month high, but base metal prices remained up to two-thirds below their 2008 records.

Priced in terms of the broad commodities market, Gold Bullion reached an all-time record high in Feb. 2009 – almost twice its previous 30-year average in terms of the CRB index of energy, metals and agricultural materials.

On the economic front today, European Retail Sales showed a 4.0% drop in Feb. from a year earlier, while Jobs Advertised in Australia fell nearly 9% from a month earlier and Japan's Leading Indicators report ticked lower.

After doubling from last year's near-90% plunge, the Baltic Dry index of international shipping prices has slumped once again, losing almost one-third since late Feb.

The United States shed over two million jobs in the first 3 months of this year.

"We're running out of impetus here," says Sean Corrigan of the $5 billion Diapason Commodities Management group in Lausanne, Switzerland, speaking to Bloomberg.

"We're not building houses anywhere in the world, car sales are down by 50 to 60% in the major economies, and commercial real estate is running into problems."

Copper prices have risen by more than 50% since the end of 2008, but now the metal is "very expensive relative to the collapse in industrial demand," agrees another UK fund manager.

Morgan Stanley analysts say copper is the industrial metal "most likely to fall" in the second-half of 2009.

"I don't think China has an interest in pushing the Dollar lower," said French finance minister Christine Lagarde in a radio interview on Sunday. "Like all of us, it wants the Dollar to be a strong currency."

"[But] it's true that a kind of competitive devaluation in the context of large deficits is a big temptation for a country whose currency is still a reference currency."

In the last two weeks, reports Time magazine , the Chinese authorities have inked "multibillion-dollar currency swap agreements with Indonesia and Argentina that effectively allow Beijing's two trading partners to bypass the Dollar as a medium of exchange."

The news comes after China agreed similar deals – funding its exports with Yuan loans – with Malaysia, Hong Kong and South Korea.

"The combined value of the various swaps – which enable the central banks of China's trading partners to sell Yuan to local importers to buy Chinese goods – is nearly $100 billion," says Time .

After last week's G20 summit of political leaders here in London agreed to use IMF Gold Sales to help fund $1.1 trillion of global monetary stimulus, "Central banks such as those in China, Russia and Japan are obvious counterparties to this kind of sale," said a note from Morgan Stanley analyst Hussein Allidina on Thursday.

Big-Dollar holders could see the IMF's sale of 403 tonnes of gold – already proposed but yet to be approved by majority shareholder, the US Congress – as a chance to Buy Gold "off-market, limiting the effect on prices on the spot and Comex markets," reports Bloomberg.

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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