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COMMODITIES GOLD GOLD: REBOUNDS WILL RISK SHIVER BATTERED AVERSION ON JAPAN AFTER BY BANISH DEBT SHARPEST U.S. CREDIT DOWNGRADE CORRECTION LOSS DOWNGRADE SINCE DESPITE FEARS? MAY CORRECTION FEARS AUGUST 2011 The final stage is often the fiercest rally in a commodities market, as seen in the sharp rise over the past several weeks, he said. While several political and financial uncertainties -- such as high inflation and oil price, Richard Nixon's action to detach the U.S. dollar from gold and Soviet intervention in Afghanistan -- led to the rally in gold to $835 in 1980, there are even more reasons for a surge in prices now, Wang said. "Today's situation could be worse, as risk aversion has taken tight hold of people's psychology." The G-7 and U.S. government are seen running out of resources to rescue the economy, which has been hit hard by the bankruptcies following the 2008 subprime debt, persistent worries that the sovereign debt crisis in euro zone peripheral countries may spread to bigger regional economies, high inflation in emerging markets and soaring commodities prices. Central banks from South Korea, Mexico and Russia to Thailand have been adding gold to their reserves in a sign of waning faith in the West's benchmark bonds and currencies like the dollar and the euro. Spot gold prices could rise further towards the 1980's inflation-adjusted record price of just below $2,500, Wang said. ** Wang Tao is a Reuters market analyst for commodities and energy technicals. The views expressed are his own. No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analyses.** Gold shines as Swiss franc's haven appeal dims By Jan Harvey and Jessica Mortimer LONDON, Aug 22 (Reuters) - M oves by the Swiss National Bank to curb strength of the Swiss franc will fuel investors' insatiable demand for gold, adding to its relentless rise to new record highs as confidence in the franc as a safe store of value dwindles. Analysts say this could help gold vault $2,000 an ounce within the coming weeks, with the potential for very large spikes if risk aversion on financial markets gains momentum. The Swiss franc has fallen sharply from record highs since the SNB bank vowed on Aug. 10 to take steps to curb franc strength. The Swiss central bank has flooded the franc market with liquidity and sold the currency via swaps on the forward market to dim its appeal. A man melts down gold jewelry in Los Angeles, California August 24, 2011. REUTERS/Lucy Nicholson 16
COMMODITIES GOLD GOLD: REBOUNDS WILL RISK SHIVER BATTERED AVERSION ON JAPAN AFTER BY BANISH DEBT SHARPEST U.S. CREDIT DOWNGRADE CORRECTION LOSS DOWNGRADE SINCE DESPITE FEARS? MAY CORRECTION FEARS AUGUST 2011 Since that date, gold priced in Swiss francs has spiked. This reversed a trend over recent months when Swiss francdenominated gold stayed relatively steady as gold in other major currencies hit a string of record highs. "While gold in euro, sterling and dollar terms was really skyrocketing, gold in Swiss franc terms wasn't doing much, and that's telling us that the Swiss franc was being seen as a proxy to gold," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange. "Now we've seen an enormous spike in Swiss franc-denominated gold, which may indicate that the SNB has succeeded in causing the Swiss franc's proxy status to gold to become unhinged." Swiss franc-priced gold has risen nearly 20 percent since the SNB's announcement, hitting a record high for the first time since June 2010 near 1,500 francs ($1,908) an ounce. Spot gold has climbed just over 8 percent to record highs just below $1,900 an ounce in the same period. With concerns about high U.S. debt and a weak economy denting the appeal of the dollar and intervention by Japanese authorities weighing on the yen, the SNB's measures remove the franc as the remaining accessible safe-haven currency, boosting demand for gold. "Given that even the Swiss are considering adding liquidity to the market, gold as a currency that can't be printed has a certain attraction," said David Jollie, an analyst at Mitsui Precious Metals. Maurice Pomery, an analyst at consultants Strategic Alpha, said that now the SNB have "turned off the safety valve", gold could surpass $2,000 an ounce within two weeks, while silver will also gain. Analysts say gold's appeal is enhanced as the SNB's actions have caused short-term deposit and money rates in Switzerland to turn negative. "Gold usually does well in currencies that cut rates and have negative real rates," said Tobias Merath, an analyst at Credit Suisse. "If you get a negative nominal yield on government paper and a zero yield on gold, then gold looks more attractive." WEAKNESS ACROSS THE CURRENCIES Once seen as a hedge against weakness in the dollar, gold is increasingly perceived as an alternative to paper currencies in general as central banks seek to keep their currencies weak via quantitative easing or through intervention -- described by some as "currency wars". Central bank intervention in currency markets typically has a significant effect on gold prices. Gold priced in Japanese yen rallied nearly 9 percent to a then-record high near 140,000 yen ($1,836) an ounce in the week after the Bank of Japan intervened to curb strength in the currency on Aug. 4. BoJ/SNB activity, gold price: ( http://r.reuters.com/pex33s ) Asset returns in 2011: ( http://r.reuters.com/suz52s ) Gold in different currencies: ( http://r.reuters.com/wun62s ) Gold prices have hit record highs in recent weeks in all major currencies -- U.S. dollars, yen, euros and sterling -- as well as major commodity currencies such as the South African rand, Canadian, New Zealand and Australian dollars. The devaluation of major currencies cannot be seen in currency rates - except until recently against the Swiss franc - because all currencies have been losing value, but it can be seen in their value against gold. Bank of New York Mellon currency strategist Simon Derrick argues that gold's long-term ascent that began in 2001 coincided with the Bank of Japan's quantitative easing programme that began that year and went on until 2006. "Gold is a flight from currency debasement," BNYM's Derrick said. "It's not gold going up, it's developed currencies going down." Record price to pinch India's festive gold demand By Rajendra Jadhav MUMBAI, Aug 22 (Reuters) - R ecord high prices could pinch gold demand in India, the world's biggest consumer, during the key festival buying season in September and October, but investment demand will help ensure record imports in 2011, the head of India's leading trade body told Reuters. "If prices stay at current levels, demand will be lower during the festival season. But if prices fall to 25,000 rupees (per 10 grams), then it will rise," Prithviraj Kothari, president of the Bombay Bullion Association, said in an interview on Monday. "Overall (India's) imports I think will be more than 1,000 tonnes despite lower sales during festivals," he said. India's key October gold contract on the Multi Commodity Exchange hit another record high on Monday at 28,244 rupees ($618.44) per 10 grams while international prices rallied towards $1,900 an ounce. Interest in the safe haven commodity was fuelled by concerns over the global economic outlook. "In January to June we have already imported over 500 tonnes. Now people are not only buying during festivals. They buy throughout the year. Whenever they get an opportunity, they buy," Kothari said. 17
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