Gold Rally Stalls as "Targeted" & "Courageous" Governments Spark Huge Monetary Inflation - Monday 3rd November 2008
The Spot Gold Price rose 2% early Monday, briefly touching $739 an ounce before slipping back as world stock markets continued to struggle after suffering their worst month in 21 years.
Crude oil slipped again, while the US Dollar and Japanese Yen held steady on the currency markets after October's record surge, when "all the trades that worked well for the past five years went badly very quickly," as one Citigroup strategist put it to Reuters this morning.
Government bonds rose – pushing yields lower – on hopes of further interest-rate cuts to follow the United States, China, Norway, Australia, South Korea, Japan, India and Vietnam.
"It seems that central banks are in a race to drive their rates down towards zero," says Steven Barrow at Standard Bank in London.
"The Bank of Japan only has another 30 basis-points to go, the Fed 100 bps...The key question this week is whether the European Central Bank and Bank of England take the baton from the Fed and cut 50 bps [on Thursday]."
Monday morning saw the Pound Sterling fail to hold an early 3¢ rally, while the European single currency traded more than 3% below Friday's one-week peak.
The Gold Price in Sterling rose 1.4% from last week's close to touch £457 an ounce.
For French, German and Italian investors looking to Buy Gold today, the price gave back an early 1.2% bounce to trade below €570.
"All the Western central banks have guaranteed the banking system," said Mario Innecco of M.F.Global brokers in London to Bloomberg today.
"The cost is going to be higher inflation and paper currencies will be worth less," he believes, with the Gold Price rising to $950 an ounce by year-end.
But while Gold Bullion cannot be created at will, making it a potentially useful "inflation hedge" as the world's money supply jumps, "investors are viewing it as part of the commodity class," says Joel Crane, a strategist in New York for Deutsche Bank.
"Commodity is a bad word right now. Through this whole credit crisis mess, cash has been king."
Hedge funds and other institutions cut their betting on the Gold Price yet again in the week-ending last Tuesday, new data from US regulator the CFTC showed at the weekend.
