Monday, March 7, 2011

Gold Climbs To New Record High On Libya, Greece Downgrade

It isn't just the Libyan rebellion that's pushing gold up. A new downgrade from an old trouble spot helped push the metal to a new record: Moody's knocked down Grecian sovereign debt three notches from Ba1 to B1. That new rating puts the bonds even further into junk territory. Naturally, the Grecian government protested. The reason for the downgrade does relate to Libya: the oil price rise is expected to add to the load on the back of Greece's economy.

With respect to Libya itself, both Gadaffi's forces and the rebels' are largely dug in at their respective strongholds. There was enough back-and-forth action in the troubled country to keep the outcome inconclusive for now. More conclusive is the continued rise in the price of oil.

Gold jumped out of the gate, although fading back a couple of hours later, and settled into a comfortable range between $1,435 and $1,440. The range was broken on the upside at 6:30 AM ET, when the metal climbed up to a new record high of $1,445.20. Sinking a little from that high, it remained comfortably above $1,440. As of 8:13, the spot price was $1,443.10 for a gain of $10.30 since Friday's close. The Kitco Gold Index split the gain into +$6.30 for predominant buying and +$4.00 for a weakening of the greenback.

The U.S. Dollar Index didn't fare that well in early morning, tunring decisively down long before gold turned up. After sinking initially, it rallied up to 76.5 last evening but couldn't hold on; instead, it settled into a range between 76.4 and 76.45. Getting more volatile around 2:00, it first stumbled then jumped before sliding down to below 76.2 by 5:00. A further period of indecisiveness preceded another stumble that briefly put it below 76.15. Recovering, it lurched around 76.2. As of 8:22, it was at 76.19.

A Bloomberg report said gold hit its new record out of concern about global inflation and the escalating battles in Libya.
“We have a mix of inflation fears and safe-haven buying,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany, said today by phone. “As long as the political unrest in the Middle East and North Africa region continues and oil prices stay at elevated levels,” gold will be supported, he said.
Also mentioned was the decline in the U.S. dollar, which is in a definite bear trend.

An earlier Reuters article also cited inflation concern and the widening battles in Libya. There's also the Saudi Arabian "Day of Rage" coming up on the 11th, adding to the worry about the region.
"If we do see tension escalating further, then we could witness a new high in gold. Besides Libya, I think investors will also be looking at other countries within the Middle East. The example will be Saudi Arabia," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.
That new record high has come to be. Despite the excitement, physical buying in Asia has been muted with no country being a stand-out. Nor does buying stand out from selling, despite the fear trade. Price consciousness still lives in those markets, particularly in India. The rush has yet to spill over into rising holdings of the SPDR Gold Shares trust: they were unchanged on Friday at 1,210.62 tonnes.

The morning Wall Street Journal article said gold rose on Middle East - North African unrest and the rise in oil that's accompanying it.
Oil rose because an escalation in fighting between opposition forces in Libya and fighters loyal to Moammar Gadhafi raised concerns the world's 12th-largest oil exporter is heading towards a prolonged civil war.

"Middle East tensions have continued to support crude, which is setting gold up to challenge its previous high," a trader said.
Silver also benefitted, but the platinum-group metals haven't.

No new data on the U.S. economy slipped out from the pipe at 8:30, so gold and the greenback weren't nudged by any such item. As the pit session began, gold kept falling from its new record; it sunk to just above $1,440, but didn't breach that level. As of 8:41, the spot price was $1,440.40 for a gain of $7.60 since Friday's close. The Kitco Gold Index divided the gain into +$4.60 for predominant buying and +$3.00 for greenback weakening. The U.S. Dollar Index continued to recover from its early-monring low, reaching 72.67 by 8:45 AM.

As Libya churns out more trouble, and other trouble points show a lapse from dormancy, gold continues to benefit. Although its rise is slow, it's put last Thursday's plummet decisively behind it. Hopes for peace are fading, and more trouble is coming for more Islamic governments like Saudi Arabia. The Mideast revolts of '11 is beginning to resemble 1830 Europe, although to what long-term end is yet unclear. As tensions continue to rise, and inflation becomes less hidden, gold is likely to keep benefitting. It might make another record in today's regular trading.

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