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Gold Price: Monthly Finish Confirms 10-Year Bull Pattern as Chinese IMF Rumor Debunked But Low Rates "Support Long-Term Rise" - Friday 26th February 2010


The Gold Price in Dollars pushed higher early in London on Friday, nearing the last weekend of February some 2.8% above January's finish, and confirming the last 10 year's pattern of never falling for more than two months running.



World stock markets also ticked higher after better-than-expected Japanese industrial data.



Crude oil and broad commodity prices, like government bonds, were little changed.



"A high Gold Price is a sign of high worldwide inflation fears," notes economist Chris Dillow in the UK's Investors Chronicle today.



"Although the outlook for inflation is stable according to the Federal Reserve," write Bradley George and Daniel Sacks at the Investec Global Gold fund in a new client report, "we believe the [Fed's] reaffirmation that rates are likely to remain low for an extended period should be supportive of Gold Prices in the long term."



Thursday's rumor that China's central bank had "confirmed" it would the remaining 191 tonnes of IMF gold now for sale were denied by their Russian author, who told Reuters she had only repeated existing comments and was unaware the price had jumped on her "news".



Rallying 1.8% however, Gold was then pushed higher again by what several London dealers today call "short covering" – where bearish players were forced to close their bets by rising prices.



"Since gold exports from China are banned, we can assume that some of the 310 tonnes of gold mined by the country in 2009 has already been added to the1054 tonnes of existing reserves," says the latest Commodities Weekly report from Patrick Artus' team at Natixis in Paris.



"[But] although China certainly remains interested in acquiring international gold mines, they may balk at buying 191 tonnes [of Gold Bullion] on the open market at prices above $1100 an ounce."



"I don't believe it makes sense for China to make such a big public purchase of the remaining gold," agrees David Barclay at Standard Chartered in Hong Kong, speaking to Reuters.



"You can see the impact when India bought [200 tonnes in Oct]. Prices went on to rally substantially after that. China has added sensitivity over the fact that it's got such large Dollar holdings."



Cutting this week's US$30-per-ounce loss by two-thirds for an AM Gold Fix of $1112.50 in London today, gold rose against all other major currencies too.



Heading into the close with a week-on-week gain for Australian, UK and Canadian owners, the Gold Price held for the tenth session running above €800 an ounce for Euro investors.



Only 87% as volatile as US Dollar-gold prices over the last 10 years on average, the Euro price has become less volatile still this month, displaying a 1-month volatility of 14.2%.



Gold priced in Dollars now shows an 18.5% volatility.



"Investors reacted quite sharply to the China rumors," notes MKS Finance in Geneva, "and the [Dollar] volatility implies the market is still quite thin."



"From a daily close basis, it seems Gold is unable to move below 1098," says London market-maker Scotia Mocatta. "We see resistance at 1111 and then at the Monday high of 1131."



In the wholesale Gold Bullion market, "Physical buying interest has slowed substantially only a few days after the Chinese New Year," reports Walter de Wet at Standard Bank in London.



"The fact that gold is holding up well in other currencies (such as Euro, Indian Rupee, etc) makes physical buying less attractive at the moment. However, we also note that there large volumes of scrap selling are not as prevalent as in [early] 2009.



"Given the lack of scrap coming to the market, once the Dollar starts to depreciate, a sizable increase in the Gold Price may follow."



Here in London, meantime, UK house prices fell unexpectedly this month, the Nationwide lender said, while new GDP data said the economy grew at 0.3% rather than 0.1% between Oct. and Dec.



Data revisions worsened the year-on-year slump to 3.3%, however.



Sterling fell through $1.52 on the forex market for the time since May 2009. Gilt and other government bond prices were little changed ahead of fourth-quarter GDP revisions from the US Bureau of Economic Analysis.



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Adrian Ash, 26 Feb '10

Adrian Ash runs the research desk at BullionVault, the world's No.1 private investor gold service online. Formerly head of editorial at Fleet Street Publications – London's top publisher of financial advice for private investors – he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to 321gold, FinancialSense, GoldSeek, Prudent Bear, SafeHaven and Whiskey & Gunpowder among many other leading investment websites. Adrian's views on the Gold Market have been sought by leading news organizations including the Financial Times, the Economist, Bloomberg and Der Stern in Germany.





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