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London
Gold Market Report
THE
PRICE OF GOLD stalled $3 shy of last week's all-time
Dollar record in London trade on Wednesday morning, peaking above $1361 an
ounce as the US currency fell and global stock markets rose sharply.
Gold priced in Sterling rose within 1.3% of June's record peak at £870
per ounce.
Eurozone investors wanting to buy gold saw it hold in the upper-end of the
last nine weeks' trading range at €31,300 per kilo.
Over in Asia, Tuesday's lack of Indian and Chinese demand had been reversed
according to wholesale dealers, with speculative buying noted on the
electronic Globex platform after Beijing said China's crude oil imports rose
35% last month from Sept. 2009, hitting a new record of 5.67 million barrels
per day.
US crude oil futures jumped back towards $83 per barrel. European equity
markets added well over 1%.
Trading-room rumors meantime said Egypt has become at least the 14th central
bank to start selling its own currency in a bid to depress its value on the
forex market.
"If the inflows are lumpy and volatile, or if they disrupt the
macroeconomic situation, we will [also] intervene," said Reserve Bank of
India chief Duvvuri Subbarao this morning.
US Treasury secretary Tim Geithner said Tuesday he sees "No risk"
of a global currency war – the term used last month by the Brazilian
finance minister to describe the rash of naked interventions in the forex
market by central banks worldwide.
In the last fortnight alone, believes Simon Derrick at Bank of New York
Mellon, purchases of US Dollars by South Korea, Malaysia, Indonesia, Thailand
and Taiwan have seen them accumulate foreign exchange reserves at up to six
times their previous pace, collectively buying $28.74 billion according to
IFR Markets.
"Despite this, the South Korean Won has climbed 5.7% against the Dollar
since the start of September," the Financial
Times notes, "while the Malaysian Ringgit has gained 1.3% and
the Thai Baht 4.3%.
"China has allowed the Renminbi to rise by 2% against the Dollar since
the beginning of last month."
Back in gold bullion, "The second round of quantitative easing from the
US Fed " – widely expected at $500bn to $2 trillion from the start
of Nov. – "has been priced in for the past few weeks,"
reckons Marwan Shakarchi at Swiss refiner MKS's Finance division.
"The market is now on the look-out for stimulating news."
Minutes from the Federal Reserve's latest meeting, released Tuesday, showed
policy-makers voicing growing concerns over rising unemployment and weakening
inflation in the US economy, plus an increased willingness to start targeting
absolute price levels rather than a particular rate of inflation.
Five voting members of the Fed committee actively support quantitative
easing, says a note from analysts at RBS, while another five "will vote
with the chairman", Ben Bernanke.
Only one member – Thomas Hoenig, president of Kansas Fed – looks
likely to vote against QEII at the forthcoming November meeting.
"The market is priced for the Fed to be pretty aggressive," agrees
Steve Barrow, chief currency strategist at Standard Bank. But "the
upshot" of QEII "is likely to be further weakness for the Dollar
and further falls in bond yields...[perhaps] by leaving the total
indeterminate and, instead, announcing a monthly, or quarterly, buying
program.
"[The Fed] will only stop this when it deems the policy is no longer
necessary."
Swiss bank UBS also expects the Fed to announce monthly targets for its QEII
asset purchases, perhaps between $35 billion and $65bn of government Treasury
bonds according to chief metals strategist Dr. Edel Tully.
"Gold could correct if the Fed's asset purchases are smaller than
expected," she cautions, quoted by Dow Jones Newswire, "since gold
prices have already risen substantially in anticipation of quantitative
easing."
Technical analysis also means "Charts are showing warning signs of a
possible consolidation taking place," according to Axel Rudolph at
Commerzbank in Luxembourg.
"Put another way, the risks at present outweigh the potential rewards of
buying gold at current levels," he adds, in part because "Five and
25-year seasonality shows October to be a month in which the gold price tends
to decline."
Turning short-term bullish on the US Dollar, Dr. Marc Faber – the Swiss
"über-bear" money manager now based in Thailand, and editor of
the Gloom, Boom & Doom Report – agrees there could be a
"significant correction" in gold and other commodity prices.
"This would represent a buying opportunity," he
advises.
Adrian
Ash
Head of Research
Bullionvault.com
You can also Receive
your first gram of Gold free by opening an account with Bullion Vault : Click
here.
City correspondent
for The Daily Reckoning in London, Adrian Ash is head of research at BullionVault.com –
giving you direct access to investment gold, vaulted in Zurich, on $3 spreads
and 0.8% dealing fees.
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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