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Gold Near $950 as U.S. Treasury Bonds Fall Again

Commodities / Gold & Silver 2009 Jun 11, 2009 - 08:05 AM GMT

By: Adrian_Ash

Commodities THE PRICE OF GOLD rebounded off yesterday's low beneath $950 an ounce Thursday morning in London, ticking down from Monday's 3-month high as world stock markets held flat and government debt prices fell.

News that Japan's GDP shrank less quickly than feared – but still fell at a record pace – between Jan. and April sent Tokyo's Nikkei index briefly above the 10,000-mark for the first time since Oct.

Crude oil futures meantime pushed up to new 7-month highs near $72 per barrel on news of a sharp jump in Chinese energy imports.

"Though higher inflation adds fodder to gold bulls, a rise in Gold Prices may be slow and steady from here on," says Pradeep Unni at Richcomm Global Services in Dubai, speaking to Bloomberg.

"The latest concern is the widening US trade and budget deficits which threaten that the massive government spending and Federal Reserve cash infusions will lead to inflation."

Wednesday saw the United States report sharply wider deficits in both its trade and fiscal accounts. Treasury debt has now swelled by almost $1 trillion in fiscal-year 2009 to date.

Early this morning US bond yields rose further as prices fell, pushing 10-year yields up to 3.95%, a fresh 8-month high.

The daily change in 10-year US bond yields is now four times as volatile as over the last 45-years on average.

Yesterday's spike in the Gold Price to $965 an ounce came on "News of Russia's intention to decrease the share of US Treasuries in its foreign reserves," reckons by Walter de Wet at Standard Bank today.

Thirty per cent of Moscow's $400 billion sovereign wealth fund is currently held in US Treasury debt, and "We plan to reduce [that] portion since the window of opportunity has arisen to work with other instruments," said deputy-chairman of the central bank, Alexei Ulyukayev on Wednesday.

"What we really want is that other currencies are also behind international transactions," said Brazilian finance minister Guido Mantega today in Brasilia.

Ahead of next week's BRIC summit – where political leaders from the fast-emerging economies of Brazil, Russia, India and China will meet – Mantega offered to fund $10 billion of loans to the International Monetary Fund (IMF), calling it part of a "united approach" to helping poorer nations but adding that it's "no move to weaken the US Dollar."

China plans to lend $50bn to the IMF, he said, and Russia will lend $10bn.

Back in Moscow, and ahead of next month's talks to renew the Strategic Arms Reduction Treaty (START 1) between the United States and Russia, the commander of Russia's Strategic Nuclear Forces said on Wednesday that he wants to retain "not less than 1,500 nuclear warheads" – little different from the 1,700 lower limit already agreed for 2012.

Global energy watchdog the International Energy Agency meantime ascribed the surge in crude oil prices to the "long-awaited emergence of improving fundamentals" in its latest report, published today.

The IEA has revised its 2009 demand forecast higher, trimming the drop from 2008's record levels to 2.9%. But speculative demand for oil-price exposure has also driven the surge, the IEA adds, noting that non-commercial traders in Nymex crude futures have gone from a "net short" position of 11,285 contracts in early May to a "net long" of 40,122 contracts at the start of June.

The 12-month forward price for US crude oil has leapt alongside this shift, jumping from $66.50 per barrel to $75.85.

"The gold market is holding up, with the Dollar playing an important role," says Ronald Leung at Lee Cheong Gold Dealers in Hong Kong, speaking today to Reuters.

"[But] we need more data to see if the economy is really turning around or whether that is just being used as an excuse for trading.

"People are also looking to see where they can invest - stocks or bonds, which are offering good yields."

Currency traders awaiting Thursday's US Retail Sales data pushed the Dollar down to $1.6480 per UK Pound this morning – 4% lower for this week so far.

For Sterling investors now Ready to Buy  Gold, that pushed the wholesale spot price down to a fresh 5-month low beneath £580 an ounce.

The Euro failed to break above $1.40 to the Dollar however, capping gold's drop at €678 an ounce for French, German and Italian buyers.

Today the European Central Bank (ECB) lent €3 billion to Sweden's Riksbank in a "stabilization" bid to ease tensions over bad loans and a possible government default by the neighboring Baltic state of Latvia.

Across on America's Pacific coast, "Without immediate solutions from the governor and legislature, we are less than 50 days away from a meltdown of state government," said California's controller John Chiang in a statement on Wednesday.

Tax revenues in the sunshine state – which creates one-eighth of the United States' entire economy – fell nearly 18% in May from the same time last year. The budget deficit for this tax year is projected to be at least $24 billion.

By Adrian Ash

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 , 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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