Gold New Record Near $1,300/oz Level as Irish Bond Sale and QE2 in Focus

Gold

Gold rose to a record for a third day in London and early New York trading while silver traded 2.3 percent below $21.355 an ounce, its highest price since it reached $48.70/oz in 1980. Sterling is also under pressure today and this has seen gold rise in sterling terms to over £820/oz (see Cross Currency Table).

Gold is currently trading at $1,278.95/oz, €980.19/oz, £821.26/oz.

Ireland Government Bond 10 Year – 5 Days (Tick). Click on image to view full size.

The dollar has weakened on continuing economic concerns after recent poor data out of the US. The immediate concern is sovereign debt issues and in the short term markets are nervous about the sale of 1.5 billion euros ($2 billion) of Irish government debt this week. Irish Finance Minister Brian Lenihan said the country won’t need financial aid from the European Union as it prepares to sell the 1.5 billion euros tomorrow. Irish government bonds have been sold heavily in recent days (see chart above) with a corresponding sharp rise in yields due to the challenging fiscal situation in Ireland.

More long term market participants are nervous about the faltering economic recovery and the likely need for a new round of monetary and quantitative easing. The Federal Reserve is likely to discuss and may signal a further round of quantitative easing at the FOMC meeting tomorrow which could propel gold to over $1,300/oz. The concern is that QE2 will lead to a further deteriorating in government balance sheets and will lead to the debasement of the currency and in time to inflation.

Gold in USD – 5 Day (Tick). Click on image to view full size.

With interest rates set to remain near record lows and a new round of monetary easingseemingly increasingly likely, gold will remain in demand as a safe haven asset and inflation hedge. Gold’s bull market may continue until interest rates rise to higher levels as happened in the 1970s. This is especially the case as gold remains nearly half of the $2,300/oz inflation adjusted high from 1980. Gold today is only trading at $455/oz in real terms if one adjusts for the considerable inflation over the last 30 years.

Cross Currency Table at 1215 GMT. Click on image to view full size.

Silver

Silver is currently trading at $20.84/oz, €15.97/oz and £13.38/oz.

Platinum Group Metals

Platinum is trading at $1,618.50/oz, palladium is at $540/oz and rhodium is at $2,050/oz.

Mark OByrne

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