Gold prices paused for breathe overnight after coming within touching distance of $1,100 per ounce on Wednesday afternoon. The IMF deal with India and the Federal Reserve’s rate decision added further support to the gold rally as the Dollars decline persisted. Yesterday the Fed maintained interest rates at historic lows and it pledged to keep borrowing costs low for an ‘extended period’.
This morning the gold futures began to pick up after easing to intra-day lows of $1,084 and were last changing hands around $1,090.
On Wednesday gold continued to test new territory and hit yet another all time high of $1,098/ounce. After months of continual gains the gold price now stands 23% higher than at the turn of the year. With general themes leading to speculation over the US Dollar’s demise as the Global reserve currency.
On Tuesday news that India had shelled out $6.7 billion to buy 200 tonnes of gold from the IMF sparked off speculation that none of the proposed 400 tonnes of gold up for sales by the IMF would actually hit the market, instead being snapped up by emerging economies keen to diversify their investments out of US dollars.
Many commentators suggest that the IMF’s deal with India is significant for two key reasons. Firstly in a tangible sense, the directly agreed sale has alleviated downside pressures in the physical market. Some investors feared that such a sale on the open market could have sparked wider selling to challenge any further rally. Analysts have identified the potential for a ‘bidding-war’ between developing central banks such as China and Russia for the remaining 200 tonnes of IMF gold-sale.
Secondly market commentators have highlighted the symbolism of the purchase. Many suggest that it is yet another indication that the world’s emerging economies are losing faith in the US Dollar for their respective financial reserves.
Over the past few months several reports have highlighted the growing scepticism over Dollar’s future role in the global economy. In September, reports suggested that certain oil producing states explored a move away from a Dollar pricing mechanism in the Crude Oil market. Similarly in a number of international Finance minister have been reported to have questioned the effectiveness of the Dollar as a global reserve currency.
Some may argue that the US Dollar and US Government Bonds are becoming less relevant to International institutions, both in the investment industry and the wider economic organisations. Undoubtedly the US Dollar’s role in the global economic structure has been under the microscope, however at such an early stage many feel as though the line between political posturing and the potential for real practical measures will remain blurred for some time.
What is certain however is gold’s persistent appeal in this uncertain time for the US Dollar. The current high represents a 23% rise over the year to date.
On the London Stock Exchange, profit taking appears to have taken hold in Gold equities which have risen considerably off the back of the irrepressible rally in the yellow metal. FTSE 100 constituent Randgold Resources (LSE: RRS, NYSE: GOLD) and the FTSE250’s Petropavlovsk (LSE: POG) both eased around one third of a percent in the morning session, meanwhile Canada based Yamana Gold (LSE: YAU, TSX: YRI, NYSE: AUY) was unchanged as gold prices consolidate following the week's prominent gain.
The trend generally continued in the junior market, the majority of AIM’s gold stocks fell between 1% and 3%. Among the few explorers and developers to advance was South American focused Mariana Resources (AIM: MARL) who jumped over 10% earlier this morning. Elsewhere Norseman Gold (AIM: NGL), Fijian based explorer Vatukoula Gold (AIM: VGM) and Avocet Mining (AIM: AVM) traded also ‘in the blue’, rising nearly 1% each.