Gold Record as Yen Carry Trade Spied Behind Free Lunch
Commodities / Gold and Silver 2011 Apr 06, 2011 - 08:37 AM GMTBy: Adrian_Ash
The WHOLESALE PRICE of gold reached new record highs vs. the Dollar in London trade on Wednesday, breaching $1460 per ounce as world stock markets also pushed higher.
Crude oil rose to new 30-month highs, while US and Eurozone government debt prices fell ahead of tomorrow's pre-announced European Central Bank rate hike.
Silver prices today broke fresh 31-year highs just 30 cents shy of $40 per ounce.
"Massive Yen/gold trade went through yesterday," said one London currency trader to BullionVault on Wednesday.
"Carry trade is back. Markets selling Yen and buying everything else. Looks like a free lunch."
"There's nothing a trader loves more than a free trade," HSBC currency strategist David Bloom told Bloomberg yesterday, noting that anyone selling Yen to buy higher-yielding currencies now has the G7 governments promising to "protect the downside [with] unlimited upside" by intervening in the forex to curb any rise in the Yen.
"They've created a little monster here, I think."
Calling Ben Bernanke's warning on US inflation "dovish", Bloom warned that "Through trying to create stability [the G7] have created instability" in financial markets, making the Yen the perfect funding currency for speculative trades.
"The negative impact on gold and silver prices in response to the increase in China's lending and deposit rates was short-lived [on Tuesday]," notes Standard Bank.
Indeed, "Gold is taking strength from ECB interest-rate expectations," says Mitsui's London dealing desk.
"The reality of accelerating inflation in China is positive for gold," reckons Swiss investment bank UBS's metals strategist Edel Tully.
Falling German Bund prices pushed interest rates higher, nudging two-year Schatz yields to the highest level since the Lehman Bros. collapse of late 2008.
Lisbon meantime locked in a 9.1% interest rate on a new sale of two-year Portuguese bonds, nearly twice the rate it would have to pay under the likely terms of an IMF-Eurozone bail out.
"[Higher Euro rates] are the last thing that Greece, Ireland or Portugal needs," says the Pimco bond-fund giant's London manager Andrew Balls.
"The ECB does need to make policy for the Eurozone as a whole, but perhaps it should consider combining a rate-hiking cycle for the core with greater realism in terms of the approach for the weakest peripheral countries."
British gilts rose in price, meantime – driving interest rates lower ahead of tomorrow's Bank of England rate decision – after a shock drop in UK manufacturing output reported for March.
The falling Pound knocked the gold price for UK investors up towards new 2011 highs just shy of £899 per ounce.
Japanese gold futures traded in Tokyo had earlier risen in 28 years, breaching ¥4000 per gram for the first time since Feb. 1983.
Over in India – home to the world's heaviest consumer market for gold – "Precious metals are on a roll" but the high gold price is diverting money to silver reports Shivom Seth in Mumbai for MineWeb, as the festival of Gudi Padwa marks the New Year in the western states of Maharashtra, Andhra Pradesh and Karnataka.
"On Monday, many Indians celebrating the festival thronged to jewellery outlets and bought silver coins as token icons."
"It is one of the most auspicious days in the year when people start new investments," MineWeb quotes Mumbai bullion dealer Manish Kedia at Dhanabhai Jewellers. "For an Indian consumer, a gold coin is mandatory [as] a traditional offering. But the high price has daunted many. Silver was the most preferred alternative."
By Adrian Ash
BullionVault.com
Gold price chart, no delay | Buy gold online at live prices
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
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