Gold News

Gold Hits New Record as Dollar Collapse Rolls On; Bonds Rise in "Flight to Quality" Even as Commodity Prices Soar

Gold Prices slipped back from an overnight record high above $975 per ounce in London on Friday, setting a new all-time high at the AM Fix as the global bid for physical assets contrasted with another down day for listed stocks.

The Gold Price in Pounds Sterling also set a new record Fix at £488.87 per ounce, while the Euro Price of Gold was capped at its fourth highest level.

One ounce of Gold cost €637.58 this morning, precisely twice what it cost French, German and Italian investors to Buy Gold last Feb 29th, back in 2004.

"Concerns over the weaker Dollar and inflation prompted investors to pour money into commodities such as soybeans and wheat as well as base metals and oil," said one Tokyo analyst to Bloomberg after the Nikkei closed the day 3.1% below Wednesday's six-week high.

"The US Dollar is falling precipitously and that's a major boost for gold," agrees Wallace Ng, chief precious metals trader at Fortis Bank in Hong Kong.

"We saw funds continue to pile into gold."

By lunchtime in Frankfurt the German Dax index stood 1.5% lower for the day, led down by export shares as the European single currency held near a fresh all-time high above$1.5220.

Today in Asia the Dollar hit a three-low against the Japanese Yen at barely ¥104.00 per greenback, despite currently offering cash savers 250 basis points more in interest per year than the Japanese currency.

"In my heart and soul, I just know and believe that a strong Dollar is in our nation's interest," joked US treasury secretary Hank Paulson in Chicago yesterday. But nobody laughed according to today's press reports.

"Our economy, like any other, is going to have its ups and downs," he went on – neglecting to mention the Fed's now wildly negative interest rates after inflation – "but I believe our economy is going to continue to grow this year and that our long-term competitiveness is going to be reflected in the value of the Dollar."

The US Dollar closed Thursday at a new all-time low of 71.67 on its trade-weighted index, down 1.6% for this year so far and more than one-quarter below its level of Feb. 2003.

The chance of another 0.75% cut in US rates when the Fed meets next month – only the second such easing since 1991, and the second under Ben Bernanke inside two months – rose to one-in-three according to futures betting at the Chicago Board of Trade when the Fed chairman spoke the Senate Banking Committee on Thursday.

"Treasuries started rallying on the back of some truly appalling data, and Bernanke's comments on bank failures spurred the flight to quality," notes Stuart Thomson, manager of $46 billion in bonds at Resolution in Glasgow, Scotland.

Prior to Bernanke's testimony on the economy, the odds of a cut to 2.25% on the Fed Funds rate were just one-in-ten. Now "we're in line for a strong rally in Treasuries," Thomson believes, and government bonds rallied worldwide this morning, finishing their best week in 18 in Tokyo, where five-year Japanese Government Bonds ended the day yielding less than 1.36%.

"It's the flight to quality," agrees Xinyi Lu, chief strategist for treasury investments at Mizuho in Tokyo. But with inflation in the cost of living now rising quickly across the world – and in all currencies, even the super-strong Euro – the "quality" of fixed-income bonds may prove to be a fake.

US crude oil futures rose above a new record of $103 per barrel in London trade this morning after Israel's deputy defense minister threatened Palestine with a "bigger holocaust" if militants continued to fire rockets across the border from the Gaza Strip.

The United Nations Security Council is meantime set to approve new sanctions against Iran tomorrow (Saturday) in protest at its on-going nuclear program, and while Turkey's land offensive in northern Iraq may have ended according to an unconfirmed report from NTV in Ankara, fresh output problems hit European oil supplies overnight.

The Sullom Voe terminal in the Shetland Islands, Scotland, was closed due to high winds. Natural gas prices rose 17% on news of a fire at Royal Dutch Shell's terminal in Bacton, Norfolk – south-east England's main connection to continental supplies.

In soft commodities US wheat futures headed towards their sharpest monthly gain since 1974 according to Bloomberg data, while soybeans hit a fresh life-time record at the Dalian Exchange in China.

Palm oil futures broke 4,000 Ringgit ($1,254) per metric ton for the first time ever in Malaysia.

"Most of the funds are buying inflation hedges such as gold, silver and oil," said one Singapore dealer today. "It's still a bull market, where hedge funds and banks buy precious metals."

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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