SPOT GOLD PRICES traded sideways in Asia overnight, moving in a $2 range before rising steadily in London to break… … $705 per ounce as the New York open drew near.

European stock markets rallied meantime, with London's top 100 share index adding 1.5% during the morning session to reach break-even from this time last month. Both the FTSE Eurofirst 300 index and the Dow on Wall Street remain 7% off their top of mid-July.

“We see no contradiction in the current trend of falling share prices and rising gold prices, but rather a confirmation of our opinion that gold is still a safe haven,” say analysts at Commerzbank.

“A safe haven is the way to go when you're looking at the Fed to lower rates,” agrees Jonathan Barratt of Commodity Broking Services in Sydney. “Precious metals seem to be quite well bid, with gold leading the path.”

Tokyo gold futures for delivery in Aug. '08 matched gains in the Nikkei stock index, rising 0.7% to equal $710.61 per ounce by the close, while the Yen held steady against the Dollar on the forex market at ¥113.60.

The other major currency crosses were also little changed overnight, but the Euro rose sharply through $1.3800 as Frankfurt traders awaited a speech to the European Parliament by Jean-Claude Trichet, head of the European Central Bank.

The British Pound also rose, gaining nearly 0.5% from its overnight low to $2.0325 despite news that the United Kingdom's trade gap widened to £4.4 billion in July ($8.9 billion), almost one-fifth greater than consensus forecasts. US trade figures for July are due for release at 08:30 EST today.

The currency move pulled the Sterling Price of Gold more than £1 lower from its mid-morning peak of £348.40 per ounce. For French and German investors, the Price of Gold in Euros briefly dipped below €510, nearly 4% higher from this time last month and 6% above its start in Jan. '07.

“Spot gold [in Dollars] broke through a triple top,” says Christopher Langguth in the latest Technichris note for Mitsui, pointing to the gold market's previous failures to break through $692 this year. “The next objective is $723.”

Langguth's technical reading of the weekly gold chart suggests the gold market – if it continues on the long-term uptrend starting in mid-2005 – could repeat the move starting from last Oct.'s low.

“A close above $723 would have a swing objective of $868,” he says. “This would be just below the 1980 high, $875.”

In the broader commodity markets, crude oil prices jumped above $78 per barrel late on Tuesday – and came within 45 cents of their all-time high – as the Opec oil cartel met in Vienna to discuss a token increase in production.

If agreed, the proposed increase of up to one million barrels per day would be solely symbolic. Opec's output already exceeds the current quota by that figure or more. Explosions in Mexico's Veracruz region overnight, apparently caused by saboteurs, then pushed oil prices back towards Monday's highs in early trade today.

Copper prices bounced in London, while zinc continued to sell off and US Treasury bonds capped a three-day winning streak as traders began to doubt the Federal Reserve's willingness to cut its interest rates as aggressively as futures prices indicate.

“It's not appropriate or necessary to ease rates aggressively,” said John Wraith at Royal Bank of Scotland to Bloomberg earlier. “We are looking for an ease this month, but any further eases will be more gradual than some in the market are looking for.”

Two-year US Treasury bond yields rose 5 basis points as prices slipped, hitting 3.89% by mid-morning in London.

“The bull rally [in gold] that people where waiting for has possibly just begun,” says Sahil Kapoor, a researcher at Kotak Commodity Services in Mumbai, India. “The key driver is expectations of demand in India…plus the Dollar has been weak against major international currencies.”

But while India's traditionally strong gold-buying season is now well underway – and while VietnamNet says gold sales in Saigon are now “bustling” at twice the usual daily volumes – “there may be both buying and selling this week,” says Pranith Tunguri at Indiabulls Commodities. “This could be a volatile week.”

“People were certainly not expecting such a sharp rise in price,” adds Mayank Khemka, managing director of Khemka International in New Delhi. “At these prices [jewelers] probably won't stock for the future.”

Bank and bullion dealers will be looking for Indian gold prices to dip towards 9,000 rupees per 10 grams, according to a Reuters report. Equivalent to $22.10 per gram, that would require a 2% dip back to $690 per ounce.

Adrian Ash
BullionVault

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 BullionVault – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

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