Cross Currency Rates
Asian equities rose overnight with the notable exception of Chinese equities which again displayed weakness. European indices have given up tentative gains after Moody’s downgrade of British banks.
Gold Spot $/Oz (G14 5 Days)
Markets await the key US jobs report and the expectation is that the US economy will likely show its fifth straight month of slight or no job creation.
Mervyn King’s warning that the current financial crisis is the worst ever and could be worse than the Great Depression may also be impacting market sentiment and should result in further safe haven demand for gold.
XAU-GBPExchange Rate (G14 5 Days)
As expected the BoE and ECB kept interest rates ultra loose and the BoE embarked on a new round of QE. The ECB announced QE ‘euro style’ with an expanded round of covered asset purchases, bond buying and long term financing operations in the euro zone.
Trichet’s retirement and the succession of Italian Mario Draghi may prove to be bullish for gold as Draghi is believed to be more dovish than Trichet and may be more likely to tolerate inflation and allow the euro to be debased.
XAU-EUR Exchange Rate (G14 5 Days)
The continuation of ultra loose monetary policies and new rounds of QE is supportive of gold in all currencies.
Negative real interest rates mean that there continues to be no ‘opportunity cost’ to own gold which is a key driver of gold’s bull market.
In time, quantitative easing will be seen for what it is – bailing out banks and financial institutions and a form of currency debasement.
Developments in gold and wider markets this week are bullish. There are continuing signs of very significant demand in the Middle East, India, Vietnam and China. There are reputable reports of shortages of gold bars in Hong Kong, Singapore and Vietnam, of shortages of silver bars in India and delays in delivery and rationing of silver coins internationally.
The CME decision to increase the amount of gold accepted as collateral and the LCH. Clearnet decision to allow gold bullion to be used as collateral shows the financial system is increasingly seeing gold as an asset on a par with cash and bonds.
XAU-CHF Exchange Rate (G14 5 Days)
The increasing acceptance of gold as collateral in the financial system is likely to continue and accelerate especially given the uncertainty regarding cash and government bonds.
This should create a new source of demand from institutions in the financial sector which would be bullish.
We are gradually seeing the remonetisation and indeed the ‘financialisation’ of gold, as gold is gradually being reincorporated into the modern financial and monetary system.