Virtual Metals Group

Media/Press

Gold hits 2-month high as Fed cut signals weakness

17 Dec 2008, London/New York (Reuters) By Frank Tang and Jan Harvey

Gold climbed 1 percent Wednesday to its highest level in more than two months as the Federal Reserve's aggressive rate cut underscored a dire economy and bolstered bullion's alternative investment appeal.

Bullion was also supported by the dollar which plunged against the euro and record-low yields of U.S. Treasury debt which showed strong flight-to-quality buying.

"It's a reflection of the safe haven flows when people are willing to get zero percent in returns for a three-month commitment from the government. It's just an indication that the prospect of the economy is weak," said Tom Pawlicki, precious metals and energy analyst of MF Global.

Long-dated U.S. Treasury debt prices jumped on Wednesday, extending a recent rally, as investors raced for any returns a day after the Federal Reserve pushed short-term rates to near zero percent.

Spot gold traded at $867.70 an ounce at 3:00 p.m. EST (2000 GMT), up 1.2 percent from Tuesday's close of $857.35. It hit a high of $881.20, its highest price since Oct. 10.

U.S. gold futures for February delivery settled up $25.80, or 3.1 percent, at $868.50 an ounce on the COMEX division of the New York Mercantile Exchange.

The euro rallied to its strongest level this quarter against the greenback at $1.4436 after the U.S. central bank's massive rate cut further widened the interest rate and yield differential in favor of the common currency.

"The primary factor is that the dollar is at 1.40 to the euro, which is an amazing turnaround," said VM Group analyst Matthew Turner.

"All this monetary easing and talk of printing money should have been good for gold, but that wasn't showing up. It was almost impossible when the dollar was rising," he said.

Gold held firm although its other main external driver, crude oil, tanked 8 percent to close just 6 cents above $40 per barrel as a production cut by OPEC was seen as too small.

Investment demand for gold-backed exchange-traded funds was firm. The world's largest bullion-backed exchange-traded fund (ETF), the SPDR Gold Trust, said its gold holdings rose 3.98 tonnes to about 770 tonnes on Dec. 16 and were up 1 percent or 7 tonnes since Friday.

PLATINUM STEADIES

Among other precious metals, platinum and palladium were little changed. The two metals, which are primarily used to make catalytic converters, have fallen sharply in recent months on fears demand would suffer from a slowdown in car sales.

Platinum is now trading close to parity with gold, a situation last seen in 1996. However, the metal is likely to recover next year, analysts said.

"Current price levels for platinum group metals are not sustainable for many South African producers unless there is a sharp weakening of the rand," said Fairfax analyst Marc Elliott.

Spot platinum was at $864 an ounce, up 0.4 percent from its previous finish of $860.50, while palladium was at $174.50, 2 percent lower than Tuesday's late quote.

Silver was at $11.39, which was 1.6 percent higher than its Tuesday close of $11.21.

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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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