Gold Leaps 4%, Hits New GBP
as World Awaits "Huge Fiscal Stimulus"
from President Obama
By: Adrian Ash, BullionVault
London Gold Market
THE PRICE OF GOLD leapt
late-morning in London on Tuesday, gaining more than 4% vs. the US Dollar as the
world's media awaited President Barack Obama's inauguration speech in
The Gold Price in Euros
also jumped 4%, reaching a 15-week high above €660.
For British investors wanting to Buy Gold today, the price
leapt to fresh all-time highs above £612 an ounce as the Pound Sterling sank yet
again and banking stocks fell.
Long-dated US Treasury bonds also fell sharply, pushing the 30-year yield almost
"During the presidential election campaign," notes Andrew
Ward in today's Financial Times, "Barack Obama and John McCain argued [over]
'wasteful' government projects such as Alaska's notorious 'bridge to nowhere'.
"Obama now seems to be promising to build bridges and roads
to almost everywhere."
"There's little doubt that Barack Obama campaigned on a
pledge to bring new hope to the American people," adds Steven Barrow, currency
analyst at Standard Bank in London, but it's doubtful that the honeymoon will
last for the US Dollar's international value, he believes.
"The Chinese Renminbi remains a thorn in the side of the US
trade balance, and Mr. Obama has vowed to fight for flexibility – and hence
strength – in the Chinese currency.
"In order to see the Dollar weaken against the Renminbi, it
may have to fall elsewhere."
Today the US currency held onto Monday's sharp bounce vs.
the Euro but continued to slip against the Japanese Yen.
The Chinese Renminbi was little changed at 6.845 per Dollar
– higher by more than one-fifth since Beijing allowed it float more freely in
early 2005, shortly after George W.Bush's second term began.
China's "vendor financing" – under which it's funded
America's consumer spending by recycling its own corporate profits into Treasury
bonds – now accounts for more than one-fifth of all outstanding US government
Treasury bond issuance for 2009 is already set to triple
from 2008's level to $1.2 trillion.
"While the US Dollar has clearly benefitted through
safe-haven demand in recent months, the outlook for this currency dims with
interest rates at zero, a dire balance sheet, and a very loose fiscal policy
strategy," says the new Precious Metals Forecast from London gold dealers
"In this situation, commodity markets could gain," the
report says, looking ahead for Gold in 2009. "The most likely avenue that mature
economies will pursue is a vast fiscal stimulus injection...Inflation will
become a very real concern once again."
Forecasting a drop of up to 4% in new Gold Mining supplies
– and questioning the "sustainability" of alternative precious metals such as
silver – "Gold is unlikely to fall below $680 this year," says Mitsui, "and we
do not doubt the metal's ability to test $1,105 in the second-half of 2009."
Meantime in Asia this morning, Japanese consumer confidence
sank to a new record lows in Dec., said the Cabinet Office.
Tokyo's Nikkei index lost 2.3% for the day. The Gold Price
in Japanese Yen recovered Monday's start at ¥2,460 per gram.
US sweet-n-light crude oil today fell below $34 per barrel,
widening the gap with Europe's benchmark, Brent crude, which held above $44.
For British investors – assured by the official UK data
agency that inflation sank to just 0.9% per year at end-2008 – the Gold Price
put on 10% from last Friday's low to reach a new record high at £612.
The Pound Sterling collapsed yet again, meanwhile, losing
fully 9¢ from Monday's start to trade below $1.40 as London's banking stocks
continued to slump.
Ten-year UK gilt yields rose further above 3.50% – more
than 200 basis points above the Bank of England's target rate.
German bund yields, in contrast, ticked lower, with the
10-year bund paying barely 50 basis points above the European Central Bank's
current target rate.
Stripping out indirect taxes as well as mortgage interest
rates – which were dragged lower by Dec.'s record low Bank of England rate at
1.5% – the RPIY index of UK retail prices rose 4.0% for the year as a whole.
Formerly City correspondent for The Daily Reckoning in
London and head of editorial at the UK's leading financial advisory for private
investors, Adrian Ash is the editor of Gold News and head of research at
BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and
0.8% dealing fees.
Please Note: This article is to inform your thinking, not
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