Gold Holds Near Fresh USD

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The price of gold held near last night’s new record highs in US Dollars, Euros and British Pounds in London on Tuesday morning, recording an AM Gold Fix at $1426 per ounce as world stock markets gained more than 1.5%.

Crude oil broke above $90 per barrel for the first time in over two years, and wheat prices hit a 4-month high.

China’s three largest gold mining stocks, Zijin, Zhongjin and Shandong, all rose more than 5%.
Silver prices took out fresh three-decade highs above $30 per ounce.

“Gold doesn’t provide diversification for an investment portfolio like it once did,” reckons Citigroup chief US equity strategist Tobias Levkovich, quoted by the Wall Street Journal online, “because it rises and falls with other riskier investments.”

“We would reckon goldwill continue to be well-supported and lifted by worries about the Eurozone debt crisis as well as by furthertalk of QE2,” counters a note from Swiss refiner MKS’s trading and finance division.

“As a matter of fact, we would expect these two elements to out rule year-end profit taking for the time being. Interest in the safe-haven appeal of the metal seems to be quite strong.”

Rumors of an imminent Chinese interest-rate rise were outweighed today in the gold market, says one global metals dealer, by the Reserve Bank of Australia leaving its target rate unchanged.

Shanghai Securities News today reported that Chinese bank lending in Nov. reached the equivalent of $90 billion, already taking loan growth for 2010 above the government’s full-year target.

With savings-deposit rates now more than 2% below the rate of consumer-price inflation, China has fast become the world’s No.2 source of physical gold demand.

“I don’t think China should increase interest rates on a continuous basis,” says government-backed market economist Chen Kexin, because “such a move will definitely attract hot money inflows. For domestic inflation, it would be adding fuel to the fire” as banks collected more cash looking for a return from lending out.

Asian trade overnight saw gold futures, silver and the other precious metals contracts “on offer” via the electronic Globex platform, says a Hong Kong dealer, but the overnight highs “were saved by a surging Euro.”

“Price action off mid-Nov.’s low [at] $1330 is impulsive in nature,” says bullion market-maker Scotia Mocatta in its latest technical analysis, and so “the risk remains for a move higher in gold toward $1500.”

Silver price action “is very bullish.”

“Silver may well [rise further] because the trend is your friend right now,” Tim Gardiner, head of precious metals worldwide at TD Securities, tells the Montreal Gazette.

“[But] when I look at it fundamentally, you’ve got to shake your head a little bit. Are we really in that much of a mess that it should be over $30?”

Monday saw the US Mint delay the launch of its 5-ounce silver bullion coin series, America the Beautiful, blaming high prices and public anticipation of higher prices in the resale market.

“Due to the limited availability of the 2010 American the Beautiful silver bullion Coin coins, public anticipation has been extremely strong,” the US Mint said in a memo sent to silver and gold coin dealers, quoted by CoinNews.net.

“The Mint has received numerous calls and inquiries from the public regarding being charged for these coins. As a result, we are delaying the launch of this program.”

Meantime in Europe overnight, 16 ministers from the Eurozone member states adjourned their meeting to resolve the ongoing debt crisis without “any new decision to announce” according to Eurogroup chairman Jean-Claude Juncker.

Due for presentation today, Ireland’s new austerity budget – essential for the €85 billion aid package offered by other EU states and the International Monetary Fund – was expected to cut tax credits by 10%, social welfare payments by 5% and public-sector pensions by 5% amongst other measures.

The gold price in Euros briefly dipped 1% this morning from last night’s new record high above €34,475 per kilo.

Government borrowing costs rose across the 16-nation currency zone today, as German Bun prices fell, nudging the benchmark 10-year yield up to 2.91%.

US Treasury yields also rose as fixed-income investment prices slipped, nudging the 10-year yield back above 3.00%, a level last seen in July.

Adrian Ash
For The Daily Reckoning Australia
Adrian Ash is head of research at www.BullionVault.com

Adrian Ash
City correspondent for The Daily Reckoning in London and formerly head of editorial at Fleet Street Publications Ltd, Adrian Ash has been studying and writing about the investment markets for the last 9 years. He is now head of research at BullionVault - giving you direct access to investment gold, vaulted in Zurich, on US$3 spreads and 0.8% dealing fees.
Adrian Ash

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