THE PRICE OF GOLD jumped into the New York opening on Thursday, recovering two-thirds of this week’s 5% losses as the surge in world stock markets reversed.

By mid-afternoon in Frankfurt, the Dax index of German equities traded 0.9% lower.

US crude oil meantime rose sharply to cut this week’s losses above $43 per barrel.

The European single currency fell back from a 3-week high vs. the Dollar hit overnight at $1.2850.

For French, German and Italian investors Ready to Buy Gold today, the price moved above €723 an ounce – some 9% below last month’s record highs, but 12% higher for 2009 so far.

“Investor demand for gold is there until we see a sustained rally in equities,” said one analyst quoted by Reuters this morning.

“The inability of the equity markets to build on gains created a climate conducive to higher Gold Prices,” agrees James Steel at HSBC, pointing to Wednesday’s 1.6% gain, “as risk-averse buyers moved cautiously back into bullion.”

Over on the bond market on Thursday – where US Treasuries held steady despite fresh concerns that China’s shrinking export sales means it can’t continue to fund America’s fiscal deficit – 10-year UK gilt yields slid below 3.0% for the first time in history as bond prices rose.

The move came after the Bank of England began buying gilts – so-called “quantitative easing” – on Wednesday.

“So far, so good,” reckons John Wraith, head of UK interest-rate products at RBC Capital Markets, speaking to the Financial Times.

“The UK bond market has really moved as a result of the Bank’s quantitative easing. We have seen yields fall by 50 basis points since the announcement last Thursday.”

Yesterday’s auction of cash in return for gilts – effectively funding the UK’s fiscal deficit with freshly-created money – drew bids for 5 times the £2 billion available.

Today the Gold Price in Sterling flipped the week’s earlier drop, rising 2.1% to touch £677 an ounce and standing 13% higher for 2009 to date.

“Faced with the double whammy of deflation and slumping exports, all policymakers want a weaker exchange rate,” notes Steven Barrow for Standard Bank’s daily forex comment.

“The problem is that [currency-to-currency] not everyone can have a weaker exchange rate. The need for global policymaking togetherness would seem to rule out beggar-thy-neighbor competitive devaluations…[but] the Swiss National Bank announces its monetary policy update today. It has made no secret of its desire for a weaker currency.”

Already charging interest of just 0.5% for Swiss Francs – the anti-inflationary stalwart of “hard money” investors during the 1970s – the SNB today slashed the cost of money to 0.25%, citing “the risk of negative inflation” as it moved to “forcefully relax” monetary policy.

The SNB also out-did the “quantitative easing” of the US and UK by announcing it would start selling Francs in exchange for foreign currencies on the open-market.

Swiss Francs tumbled in price on the news, losing 3% to the Euro inside 15 minutes.

On the supply side of the gold market, meantime, South Africa reported on Thursday a near-9% drop in gold production for January from a year earlier.

Jan. 2008 had already seen South African Gold Mining output sink 16.5% after a power outage imposed by struggling state utility Eskom.

Formerly the world’s No.1 gold producer, South Africa has now slipped into third place – well behind China and the United States – as its annual output has fallen in half over the last decade.

Adrian Ash
BullionVault

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

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