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June 26, 2009

London Gold Market Report
by Adrian Ash

Gold Gains, Dollar Falls as Greenspan Warns of "Decade of Inflation" Sparked by Money-Printing

THE PRICE OF GOLD rose yet again on Friday for US-Dollar investors, hitting two-week highs above $947 per ounce as the world's No.1 reserve currency fell on the forex market.

Crude oil also gained, nearing $71 per barrel on news of further militant attacks on drill sites in Nigeria - the world's fourth largest producer.

World stock markets ticked higher as short-dated government debt slipped back and long-dated bonds recovered from Thursday's drop.

"Gold has broken well above $940," notes Walter de Wet at Standard Bank.

"The Dollar has been assisting, and positive sentiment towards equities and lower risk aversion according to the VIX [volatility index] should also support gold today."

As the Dollar slipped back to $1.41 per Euro and ¥95.30 today, both Germany and Japan reported sharp drops in domestic prices, sparked by the US currency's near-10% fall since April.

German import prices stood 10.4% lower last month from May '08. Tokyo consumer prices have fallen 1.0% already in June.

The Gold Price in Euros was little changed early Friday, holding above last week's finish at €672 an ounce.

Japanese investors now Ready to Buy Gold saw the price hold right in the middle of the last 5 months' trading range at ¥2,900 per gram.

"To prevent the deficiencies in the [world's] main reserve currency," said No.1 Dollar creditor the People's Bank of China in a new report today, "there's a need to create a new currency that's delinked from the economies of the issuers."

Hans Timmer, a Washington-based World Bank economist, comments on the role of the dollar as a global reserve and trade currency amidst recent calls by some foreign governments for an alternative to the greenback. He spoke in an interview yesterday in Singapore.

"For the past couple of years, there's already a trend towards multi-polar currencies. If anything, the current crisis would accelerate that process.

"A couple of years from now, we will say that this [financial crisis] was the moment in which there was an opportunity for other currencies to play a bigger role," agreed World Bank economist Hans Timmer in an interview with Bloomberg yesterday.

"The Dollar won't be overtaken by a single currency very soon. But what you will see is the Dollar's role being overtaken by a multitude of currencies."

Writing today in the Financial Times, however, "Inflation is a special concern [everywhere] over the next decade," says Alan Greenspan, the former Fed chairman now widely blamed for stoking the global bubble in credit by keeping US interest rates too low, too long after the DotCom Bubble burst 10 years ago.

"[A] pending avalanche of government debt [is] about to be unloaded on world financial markets.

"The need to finance very large fiscal deficits during the coming years could lead to political pressure on central banks to print money to buy much of the newly issued debt."

"Given the current economic environment, it is time to revisit the merits or otherwise of the 'yellow metal'," says UK broker Hargreaves Lansdown on the front-page of its latest client letter.

"It has proved a remarkably resilient store of value over hundreds of years, and, in addition, is an asset where investors seek protection when they need it most."

"Available data suggests Gold Prices going higher from here," says Frank Cochran at Wolverhampton-based advisors FSC Investment Services, also quoted by the Birmingham Post.

"In a high-risk portfolio, we might have 25% in the BlackRock Gold & General Fund. Lower-risk investors prefer five to 10%. The fund is a long-term hold, for capital growth rather than income."

Adrian Ash
BullionVault.com

Head of research at BullionVault.com, the fastest growing gold bullion service online, Adrian Ash is also City correspondent for The Daily Reckoning in London, and a regular contributor to MoneyWeek magazine.

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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 should be verified elsewhere if you choose to include it in your own analysis.