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London Gold Market Report

Fri, Oct 30 2009, 13:34 GMT
by Adrian Ash

BullionVault.com

Gold Sets New Monthly Record to Lead "Great Liquidity Race"

THE PRICE OF GOLD neared month-end above $1040 an once on Friday in London, approaching a new monthly high almost 5% above Sept.'s average as Asian stock markets closed markedly higher and the US Dollar held flat on the currency markets.

US stock futures pointed lower after Thursday's better-than-expected GDP headlines helped Wall Street to its best one-day gain since July.

Broad commodity indices fell 0.8%. US crude oil contracts slipped back to $79 per barrel.

Government bonds ticked higher, pushing the yield on 10-year US Treasuries back down to 3.64%.

"Gold seems destined to move higher," says Walter de Wet in today's Commodities Daily for Standard Bank clients.

"We observe a support base building in investment demand and physical demand...Despite volatility, we see the downside in gold well-protected. Buying interest in the physical market at this stage is especially strong when gold eyes $1,030.

"Our next target is at $1,100 in Q4:09."

Next week brings interest-rate decisions from the central banks of Australia, the United States, Britain and the 16-nation Eurozone.

"While intense levels of gold selling activity have been evident, particularly in Asia," says Dr.Edel Tully in her latest Refining Monitor for Mitsui, "these occasions have been and continue to be on balance relatively contained.

"Holders are estimating higher gold prices and thus a wait and see approach prevails. Physical stocks in some markets are quite low. We have heard that certain physical hubs are actually short."

On the data front this morning, Britain's Nationwide mortgage lender said UK house prices rose this month above their level of Oct. '08 – the first annual gain in a year-and-a-half.

Consumer prices in the 350-million citizen Eurozone fell 0.1% from this time last year, according to Eurostat.

Unemployment in the world's largest single economy by GDP rose last month to 9.7%, new data showed.

"The forceful policy response to avert depression...has unleashed a wave of liquidity probably greater than that of 2001-2002," writes hedge-fund trader Paul Tudor Jones in his latest Market Outlook for clients of his $11 billion funds.

"Our job is to identify the best performing assets of this 'Great Liquidity Race' [and] our proprietary econometric model...suggests that gold is 20% undervalued over the next 24 months."

Pointing to low real rates of interest, surging global money supply, and the failure of mining supply to turn higher despite a 3-fold increase in exploration spending over the last decade, "The historical drivers of investment demand for gold seem to have simultaneously come together in 2009," Jones concludes.

"In our opinion [that] will continue to stimulate high levels of demand on a sustained basis going forward."

Gold priced in US Dollars has now risen in 77 of the last 120 months. October saw the gold price in Sterling and Euros average 1.5% and 4.5% respectively below the all-time peak of Feb. '09.

Published on  Fri, Oct 30 2009, 13:35 GMT