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London Gold Market Report

Fri, Jan 30 2009, 13:55 GMT
by Adrian Ash

BullionVault.com  |  View company's profile

Gold & Dollar Rise Together as "Market Dynamic Shifts" to Risk Aversion, Denting Stocks & Euro

THE SPOT PRICE of wholesale gold bullion leapt 2.2% at the start of London dealing on Friday, driven higher by strong institutional buying even as the US Dollar rose on the currency market.

New US data showed the world's largest single economy contracting by 3.8% on an annualized basis at the end of 2008 – better than the 5.4% contraction forecast by private-sector economists, but still a sharp acceleration from the summer's 0.5% rate and the worst pace since 1982.

"The market dynamic has shifted," says London currency trader Tom Tragett in an emailed note to us here at BullionVault today.

"Weak US data is heightening Risk Aversion, and that means selling EUR/USD, Aussie and Kiwi Dollars and the Dow while buying the Pound, Yen and Gold.

"The Euro in particular is reacting very negatively. Lower EUR/USD means traders must pile back into hoarding the yellow stuff."

Today the European single currency fell to one-week lows against the Dollar, Sterling and Japanese Yen, driving the Gold Price in Euros more than 8% higher from Thursday's low to €719 an ounce – a new all-time high.

Last month's Eurozone inflation data came in near a 10-year low. (Isn't gold an inflation hedge? Dispel the 5 Myths of the Gold  Market here...)

Looking further ahead for Gold in 2009 – and as currency traders turn from selling the Pound Sterling to selling the Euro – "The value of the US currency [also] has to go down," reckons Peter Munk, chairman of world No.1 Gold Miner Barrick Mining – speaking to Reuters at the World Economic Forum in Davos, Switzerland yesterday.

"With the rescue packages calling for trillions, not billions...gold in my opinion is more likely to go up than down."

Crude oil meantime flagged near $41 per barrel early Friday, while government bond prices rose across the board. Ten-year US Treasury yields were pushed down to 2.82%.

World stock markets slipped once again, meantime, losing value for the 14th time out of 21 sessions in January and dragging Frankfurt's Dax index of German shares 11% lower from New Year.

Gold Bullion neared month-end 4.5% higher for Dollar investors and hit new all-time highs against the Euro – up more than 14% from the end of December.

Measured in terms of the old German Deutsche Mark, the AM Gold Fix in London broke DM 45,000 per kilo for only the third time in history.

Wholesale professional dealers in London – heart of the world's Gold Bullion market – reported strong buying by institutional funds.

The SPDR exchange-traded gold fund, listed in New York but holding gold in London bank vaults, had already swelled by 8% for the month of January, as investment fund managers – barred from owning physical assets outright – took a position in the Gold ETFs.

Published on  Fri, Jan 30 2009, 13:56 GMT