Virtual Metals Group

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UPDATE: Gold At Records In Euros, Sterling; Flight To Quality

SINGAPORE May 20, 2010 (Dow Jones)

Gold raced to a record high in both euros and sterling in Asia Monday, and is hovering just below its record high in U.S. dollars as the impact of the European fiscal crisis continues to boost flows into the metal.

"It's been a flight to quality this morning. The dollar is gaining against pretty much everything except gold and that's what's driven it to the records in euros and sterling," said Darren Heathcote, head of trading at Investec in Sydney.

At 0355 GMT, gold was trading at EUR1,012 a troy ounce, up EUR16.86 since the New York close Friday, as the euro traded at its lowest level since April 2006 against the dollar, $1.2264 compared to $1.2358 late in New York trade Friday.

Gold was at a record GBP868.24/oz, up GBP20.86 as the sterling also slumped. Spot gold was at $1,241.40/oz, up $10, but below its record high of $1,249.40/oz hit Friday.

Heathcote said it was hard to see London traders not continuing to buy later in the global session, despite the temptation to take profits with gold up a remarkable 14% in euro terms and 12% in sterling terms in May so far.

"Maybe they will take the chance to sell into this but with the euro still looking weak and given the weight of buying still coming from funds and the exchange-traded funds we will probably head higher first," he said.

Gold's attraction has only been heightened by the sheer size of the European Union fiscal rescue package announced last week at nearly $1 trillion and the European Central Bank's decision to intervene directly to support the euro-denominated bond market, said Fortis Nederland/VM Metals in a report dated Friday.

"We think this is important, as the ECB was perhaps the last central bank holding firm on maintaining a strong currency, and its capitulation (if that is what it was) has boosted gold's attraction as a currency that cannot be printed," said the report.

MKS Finance, a Swiss bullion house, also said that gold was gaining on the back of its attraction as a currency hedge.

"Once more gold is setting new record highs, and is beginning to take the form of a reserve currency instead of the euro," it said.

However it noted technical resistance lies ahead.

"Investors still should expect the yellow metal to move higher in the medium term, although in the meanwhile, the process ought to be quite volatile with a very strong technical resistance at $1,250," it said in a report.

The only major currency that gold wasn't doing well against was the Japanese yen. On the Tokyo Commmodity Exchange gold was trading at Y3,673 a gram, down Y21 as the yen was also benefiting from some safe-haven flows.

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  • September 26th - Europe's central banks seen queuing up to sell gold (Reuters)
  • THE YELLOW BOOK - Virtual Metals Research & Consulting and Fortis Bank in a new analysis of the global fundamentals and outlook for the international gold market.
  • Virtual Metals Research & Consulting announces today the launch of an innovative mechanism for the funding and development of sustainability projects in the minerals extraction industry. The new entity – called MineLife - is a collaboration between Virtual Metals, Barrick Gold Corporation, Gold Fields Limited, and Harmony Gold Mining Limited. It is dedicated to alleviating poverty and building long-term socio-economic development in Africa and, ultimately, in other developing markets.
  • Q2 05 The Hedge Book - Global hedging falls 2.5 Moz to 53.1 Moz
  • The latest edition of the Hedge Book, sponsored by Mitsui, shows dehedging quickened to 2.5 Moz in Q2 05, up from just 1.3 Moz in Q1 05. For the press release and full report click here

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