Gold pulled back from a fresh nine-week high overnight to hold steady above $676 per ounce during the Asian and early London sessions on Friday.
Trading more than 1.3% above last week’s Dollar close, gold for immediate delivery also touched a new one-month high versus both Sterling and Euros before slipping just below £330 and €491 respectively.
‘The Dollar is a little bit stronger at the moment so that will be having an effect,’ says Michael Jansen, an analyst at J.P.Morgan. ‘Gold’s also been on a strong run lately, so it makes sense to see a bit of profit-taking before the weekend.’
The Swiss National Bank is certainly looking to take advantage of the current bull run says a report from Virtual Metals, the London-based consultancy. After the SNB announced in mid-June that it plans to sell 250 tonnes of bullion to rebalance its foreign reserves portfolio, data released this week show sales of 13.8 tonnes during last month.
‘This suggests the Swiss aren’t hanging around and will sell their 250 additional tonnes quite quickly,’ says Matthew Turner, an analyst at Virtual Metals.
No matter the pace of SNB sales, however, the fact that spot gold prices have risen by 2.5% against the Swiss Franc so far in July suggests strong demand for Switzerland’s bullion in the open market.
Over in the gold futures market, meantime, the most-actively traded Tocom contracts reached a five-month high versus the Japanese Yen. It’s now gained 13% since mid-March. ‘The next target is $690,’ said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo, to Reuters overnight.
‘We will soon test this. Many private investors are now entering the Tocom market. From now on, money will gradually go back to gold. Not only in Japan but also worldwide.’
In the equity markets the Tokyo Nikkei ended the week 0.4% lower. European equities were trading flat by lunchtime in London. US stock futures pointed lower following Thursday’s sharp jump to all-time record highs on both the Dow and S&P.
Government bonds rose ahead of Friday’s US open, pushing 10-year US yields down two points to 5.0% after Ben Bernanke completed his two-day testimony before the US Congress yesterday.
‘People are concerned about losses in the subprime market,’ said Kornelius Purps at Unicredit Markets & Investment in Munich to Bloomberg earlier. ‘The number Bernanke gave yesterday [putting potential subprime losses at $100 billion] confirmed they have good reason to be.’
The collapse of two hedge funds at Bear Stearns may now be repeated in Australia, where Basis Capital today warned investors in one its hedge funds to expect 50% loss or more if its creditors continue to call in assets used as collateral for highly-geared loans.
‘As there is no liquid market for many of these investments, there is a serious risk of substantial losses,’ said an email sent to Basis’s clients.
Trading in complex credit derivatives by hedge funds globally has ballooned over the last two years alone. ‘The actual money at risk through credit derivatives increased 93% to $470 billion in 2006,’ said Robert Rodriguez, head of First Pacific Advisors, in a speech made to the CFA Society of Chicago late last month.
‘The International Monetary Fund, in its April 2006 Global Financial Stability Report, estimated that credit-oriented hedge fund assets grew to more than $300 billion in 2005,’ he went on, ‘a six-fold increase in five years.
‘When levered at five to six times, this represents $1.5 to $1.8 trillion deployed into the credit markets.’
Gold, in contrast, remains very tightly supplied. Indeed, ‘if all the gold that has ever been produced and sold were melted down,’ as John Authers notes in today’s Financial Times, ‘it would fit into a cube with sides of 20 meters.
‘It is this scarcity that has made gold into a coveted asset for centuries. With supply so constrained, small moves in demand take on big significance.’
Adrian Ash is editor of Gold News and head of research at www.BullionVault.com, the fastest growing gold bullion service online