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Gold rallies hard as euro hits new record high ahead of Fed minutes

Spot gold prices leapt 2.2% from a new four-week low in Asian and early London trade on Tuesday, breaking above last week’s close to hit $789.65 by the Morning Fix.

“Gold broke down through the [three-month] uptrend line at $785 yesterday and fell to a low of $773 overnight,” notes today’s Gold Market report from Mitsui Precious Metals in London. “The market looked technically very weak and a correction back to $750 is now a high probability,” the report continues. “However, since that low overnight the Euro has rallied strongly against the USD as rumors of another interest rate cut have circulated the market.” As Gold Prices shot higher this morning – adding $11.80 to the Feb. 2008 futures contract – oil prices ticked further below $95 per barrel. The Euro, in contrast, rose to a new all-time record against the US Dollar at $1.4795. Gaining 1.5¢ at the start of European trade, the single currency has now risen more than 78% from its all-time low of Nov. 2000. The US Federal Reserve today releases the minutes from its Halloween meeting at 14:00 EST.

The Fed next meets on Dec. 11th, and interest-rate futures now put the chance of a further cut – the third since Sept. – at 96%. The odds stood at only 80% yesterday morning. “In addition to this pressure, the continued speculation that some Gulf countries may be preparing to ditch their Dollar pegs or at least revalue their currencies is helping gold,” the Mitsui team go on. Rumors are also mounting that Asian central banks are Buying Gold to reduce their US Dollar exposure. “There was the informed speculation by Evgueni Ivanov of Polyus at the RBC Capital Markets gold conference in London a week ago,” says Lawrence Williams at MineWeb today, “that Russia has been buying gold to boost the gold element of its foreign exchange reserves. There are indications too that some Middle Eastern nations have been buyers as well.” “We got a clue from the timing of the Gold Price rises in October,” notes Julian Phillips of the Gold Forecaster. “The bulk of strong gains happened before either London or New York opened. This tells us the buying came from the Middle and Far East. If it was not at retail level, then could it have been at central bank level?”

The Pound Sterling also shot higher as Gold Prices recovered today, even as the Bank of England said growth in the UK money supply slowed dramatically in Oct. to 0.1% month-on-month. Whitehall’s finances, added the official UK statistics agency, also weakened last month, hitting a two-year low. But the Pound gained 2¢ regardless to reach a four-day high of $2.0660. That capped the move in bullion for British investors wanting to Buy Gold Today, keeping the metal below £383 per ounce for a rise of 1.6% from the overnight low. Gold Priced in Euros was slower still, adding just 1.2% to hold at €534 per ounce by midday on Frankfurt. Asian and European stock markets also bounced early Tuesday to cap three days of losses. Tokyo’s Nikkei ended 1.1% higher, while the FTSE in London gained 21 points to 6,142 by mid-morning after losing 170 points on Monday.

Northern Rock, the struggling mortgage bank now underwritten by the UK government –but still unable to find a buyer – sank another 40% to drop below 50p per share after the Chancellor, Alistair Darling, said a return of taxpayers’ funds must come before any repayment to shareholders. Meantime in India – the world’s hungriest gold jewelry market, where the Diwali festival of Nov. 9th is now being followed by the busiest period for weddings – “gold demand is picking up as prices have come down a bit,” said Ashish Pethe of Waman Hari Pethe Jewellers in Mumbai to Reuters earlier. “If the [local] Gold Price remains below 10,000 Rupees per 10 grams,” agreed Ganesh Agarwal of Shiv Sahai & Sons in Chennai, “demand could be better than last year during the marriage season.” That would equate to an international Dollar price for gold of $790 per ounce. (goldseek.com)