Gold Up, Dollar Down Before Bernanke Speech

Thursday, October 23, 2008

Gold Up, Dollar Down Before Bernanke Speech

As the weak dollar boosted the appeal of precious metals as an alternative asset it gave gold a lift from the lowest level it’s ever been, raising it for the first time in a month. The dollar fell again, heading towards a week low against the yen and the further for the first time in four days against the Euro. Part of the reason was analysts’ predictions that the speech by United State Federal Reserve Chairman Ben S. Bernanke would include an announcement that America’s economy was set for a prolonged downtown.

The dollar weakening helped boost the bullion, according to Darren Heathcote, the head of trading at Investec Bank Ltd. He said that the bad news coming out of the United States on Friday indicates a recession in the future. Bullion rose as much as 2.2 percent to $800.23 an ounce, trading at $796.58 at Singapore. The lowest it had been was $773.72 an ounce on October 17, 2008. Silver also rose 3.6 percent to $9.71 an ounce. “There’s still some upward pressure on gold as a result of its potential as a relatively safe-haven investment,” Heathcote said.

Hedge fun managers and large speculators have been cutting their net long positions, however, in the face of the predicted recession. Heathcote feels that some of the reduction is due to the need to pay margin calls in the financial markets and the turmoil it is currently experiencing. “Some investors may start to think gold’s not as safe as they expected because of the wild swings in prices recently,” he also said.

Speculative long positions – the bets investors make that prices will rise and not fall – have been outnumbering short positions by 106,825 contracts based on the Comex division of the New York Mercantile Exchange. Even net long positions took a tumble, falling by 4,788 contracts – a loss of 4% - based on a week earlier. December delivery gold gained an additional 1.4% to hit $798.30 an ounce after the electronic trading on the Comex division of the New York Mercantile Exchange opened for the day. Gold for August delivery has not moved very much, staying around 2,600 yen a gram – or $795 an ounce – on the Tokyo Commodity exchange.

How Bernanke’s speech will be received still remains to be seen but the fact that the government is finally recognizing a recession is relieving as analysts have been predicting this for months, ever since the housing markets began to fall to be followed by the banks and other financial institutions.