Gold Rises with Dollar as Korean Conflict Flares, Worsening Euro Crisis Blamed on "Weak Dollar

gold bullion rose to a 1-week high in Asian and early London trade on Tuesday, touching $1370 per ounce even as the US Dollar rose on news of South and North Korea exchanging shell-fire over the disputed border island of Yeonpyeong.

Asian stock markets dropped up to 2%. Crude oil fell hard towards $80 per barrel. Silver prices unwound Monday's 2.3% rally.

The Euro fell to $1.35 – and the gold price in Euros rose above €1000 per ounce – for the first time in five sessions as Sinn Fein called for the resignation of Irish premier Brian Cowen following the joint EU-IMF intervention in Dublin's €90 billion debt.

"It seems that gold's bull-run, which has lasted more than eight years, has gathered fresh momentum," says the latest Metals Monthly from the VM Group in London for ABN Amro Bank.

"The Fed's second round of quantitative easing and the ongoing currency disputes will serve to enhance gold's 'trusted' image."

World Bank president Robert Zoellick last week called for some element of gold price reference in the global monetary system, notes VM, and "Such disquiet and attention is tailor-made for gold."

"The Eurozone cannot live with a strong Euro," writes Mansoor Mohi-uddin, managing director of currency strategy at Swiss bank UBS, in today's Financial Times, blaming the Federal Reserve's second-round of quantitative easing for the current turmoil in Europe.

Just as the Euro became over-valued in mid-2009 thanks to the falling Dollar, he believes, so this month's QE2 means lower export sales, lower growth forecasts, and thus a heavier debt burden for weaker Euro-union members.

"We don't have the luxury of time" in accepting the EU-IMF bail-out, said Dublin's transport minister Noel Dempsey this morning, rebuffing calls for an immediate general election.

EU economic commissioner Olli Rehn confirmed that it is "essential" Ireland's emergency budget is passed before Dublin's EU partners transfer the sums agreed.

A consortium of pension fund managers, insurance companies and private investors meantime challenged Anglo Irish Bank's offer of 20¢ in the Euro on their bondholdings, part of a €1.6bn buy-out offered by Dublin's beleaguered coalition government.

Madrid today sold a little over €4bn in new debt, but only at sharply higher interest-costs from Spain's most recent sale.

European stock markets lost more than 1% by lunchtime.

"Gold remains a buy on dips," says today's note from Walter de Wet's team at Standard Bank. "Not only do financial market conditions support gold investment demand, but the physical gold market also remains supportive."

Private Indian demand to buy gold should "remain positive" throughout the current wedding season, says Standard, with the Western Hemisphere then celebrating Christmas and the Chinese New Year falling on 3rd Feb. 2011.

Sovereign credit risk in Europe will meantime "provide investment demand for gold [and] combined with the physical market – which looks to provide support on dips – we believe gold in Euro-terms should outperform gold in Dollar-terms for the time being."

"Deals are very limited today" however, a Mumbai bank's Gold Dealer told Reuters earlier. "We haven't seen big transactions so far" because a falling Rupee driving local Indian prices back above INR 20,000 per 10 grams.

Over in China – the world's second largest private gold consumer – Beijing banned the hoarding of coal and oil in a bid to cut the 4.4% inflation rate, urging local officials to act with a "stronger sense of responsibility."

Both North and South Korea accused each other of firing first in this morning's clash, but the United States called Pyongyang "belligerent" and UK foreign secretary William Hague said the North's attack was "unprovoked".

China said it was "concerned" by the action. Russia – which yesterday announced raising its central-bank gold bullion reserves to 774 tonnes, overtaking Japan in the world's central-bank table – called North Korea's attack "absolutely unacceptable".

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Gold Jumps as Euro Crisis Deepens, "Buy Now If Ever" Urges Fund Manager

Two South Korean civilians were meantime found dead following yesterday's attack by the Stalinist North on the disputed island of Yeonpyeong.

"Geopolitical news typically causes knee-jerk reactions in the gold market, with gains never sustained," says MKS Finance in Geneva, Switzerland today, citing the

"[But] fears the Eurozone debt crisis could spread from Ireland have continued to support gold."

Due to outline today the four-year austerity package needed for a €90 billion EU/IMF bail out, the Irish government last night moved to take a majority stake in Bank of Ireland – the last Irish lender free from state control.

By lunchtime today, Bank of Ireland's shares had already repeated Tuesday's drop of 23%.

The gold price in Euros today held above €33,000 per kilo – a level seen only once since the record peak of €33,800 hit during June's Greek deficit crisis.

Showing a strong, positive correlation with the Dollar gold price of +0.50 during the first 10 years of its existence, the Euro currency has since shifted to a near-perfect non-correlation of +0.09 in 2010 to date.

That figure would read 1.0 if they moved absolutely in lock-step against the Dollar. At the height of the Greek deficit crisis, gold's correlation with daily swings in the Euro's Dollar-exchange rate sank to minus 0.91 – a strongly negative relationship – as gold rose but the Euro fell.

"Since the Eurozone is committed to austerity, its only recourse is protectionism," says Lord Skidelsky, urging greater government spending rather than quantitative easing.

"Meanwhile, China's policy of slowly letting the Renminbi rise against the Dollar might well go into reverse, provoking US protectionism.

"The Euro will become progressively overvalued [as the United States inflates], just as the Gold Standard bloc was in the 1930s."

"There's a lot of concern that the United States intends to inflate away their problems," says investment author and First Asset portfolio manager John Stephenson, speaking to the Globe & Mail.

"You want to hold gold if that scenario unfolds. If there's any time to buy gold, it would be now."

"The supply of money is beating out the supply of gold, driving prices higher," agrees Barry Cooper at CIBC, the $24 billion Canada-based banking group, in a new 109-page report.

Predicting further inflation in the global money supply "for the foreseeable future", Cooper raises CIBC's gold price forecast for 2011 and 2012 to $1600 and $1700 per ounce respectively.

"I worry that monetary discipline and confidence in the inflation target risks being eroded by keeping emergency settings for monetary policy in place for too long," said lone Bank of England dissenter Andrew Sentance in a speech this morning in Belfast.

UK interest rates, after inflation, have now been negative for 28 consecutive months, the longest (and only) stretch since the mid-1970s.

The gold price in Sterling has doubled since UK real rates went below zero – delivering a net loss of purchasing power to savers – in July 2008.

"With the economy recovering at home and abroad, inflation above target and set to rise further, I believe there are...powerful arguments for a gradual rise in interest rates," said Sentance this morning.

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China sees another currency crisis as inevitable

From Mish’s Global Economic Trend Analysis:

…Unbridled printing of dollars is the biggest risk to the global economy, an adviser to the Chinese central bank said in comments published on Thursday, a day after the Federal Reserve unveiled a new round of monetary easing.

China must set up a firewall via currency policy and capital controls to cushion itself from external shocks, Xia Bin said in a commentary piece in the Financial News, a Chinese-language newspaper managed by the central bank.

"As long as the world exercises no restraint in issuing global currencies such as the dollar -- and this is not easy -- then the occurrence of another crisis is inevitable…

Read full article…

More on currencies:

Bond King Bill Gross: U.S. dollar set to get smashed

The global currency war is escalating

You can profit from the coming currency wars

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Euro CRISIS: "PIIGS" default risk hits a new all-time high

From Zero Hedge:

It has been a few months since everyone was throwing the word "contagion" around just to sound smart. Prepare to get a whole lot more of that. PIIGS CDS are now at a fresh all time record, way wider than during the May days that lead to the flash crash and Greece's bankruptcy.

All this means that the fair value of the market is now...

Read full article (with chart)...

More on the euro crisis:

Return of the euro crisis: Irish yields are exploding higher

The Greek bond selloff could mean trouble for U.S. stocks

You can profit from the euro collapse without touching the dollar

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"Aggressive Investors" Target $1400 Gold and $25 Silver as Global Currency Crisis "Is Upon Us"

"Aggressive Investors" Target $1400 Gold and $25 Silver as Global Currency Crisis "Is Upon Us"London Gold Market Report

THE WHOLESALE PRICE of gold and silver bullion retreated from fresh record highs against the Dollar early Thursday afternoon in London, slipping back from overnight jumps of 1.3% and 4.5% respectively as the US currency's latest plunge paused.

European stock markets reversed early gains, but Asian stocks ended the day more than 1.5% higher on the MSCI index, as the Japanese Yen squashed the Dollar to a new 15-year low beneath ¥81 and the Euro leapt above $1.41.

"It is no wonder the rally of precious metals has been relentless," said a Hong Kong dealer of Thursday's Asian trade. "Silver led the pack higher...Then gold took over.

"[Platinum and palladium] have been relatively tame...failing to hurdle last week's highs."

With crude oil rising back above $83.50 per barrel today, the Canadian Dollar broke above parity to the US currency – only the second time since 1977.

But gold rose faster still, setting new record highs vs. the Loonie at C$1385 per ounce. Priced in US Dollars, gold and silver bullion hit $1387 and $24.90 at Thursday morning's peak.

There are "large [numbers of] December option strikes at $1400 and $25," notes one London dealer.

"Aggressive investor buying is pushing gold towards the next major resistance level of $1400," agrees Walter de Wet at Standard Bank.

"Expectations of further quantitative easing by the Fed, continues to dominate precious metals markets. [But] the physical market remains weak, with gold scrap availability remaining high."

Wednesday's slump in the Dollar – and concomitant rise in gold and silver – came after European Central Bank policy-maker Axel Weber told a conference that the ECB should halt its government-bond buying program, and start raising interest rates "before the phasing out" of the exceptional banking support offered since 2007.

"This statement had more effect on the market than the [US Federal Reserve] minutes," notes MKS Finance, a division of the Swiss refinery group.

"The cracks are getting wider, the crisis is upon us," says Marc Ostwald, strategist at Monument Securities in London.

Warning clients to pay attention to "the rifts that are opening up within Asia" over the US Dollar's six-month tumble, Ostwald points to unilateral controls on foreign-investment flows and exchange rates by Russia, Singapore and Taiwan.

Bank of Korea chief Kim Choong-Soo today rebuffed comments from a "certain country" – Japan's finance minister Yoshihiko Noda – questioning Seoul's ability to lead next month's G20 summit of advanced and emerging economies because of its repeated interventions in the currency market.

Tokyo meantime confirmed that it spent ¥2.1 trillion ($25bn) last month buying US Dollars to try and halt the Yen's rise.

"We believe many hedge funds may have enjoyed [in Sept.] their highest earnings for the past year," says a report from Japanese bank Nomura, quoted by the Financial Times' Alpha blog, pointing to the slumping-Dollar-led surge in bonds, equities and commodity prices.

"Accordingly, we now expect those hedge funds to lock in those profits ahead of their year-end book closing in November."

Noting that Fed chairman Ben Bernanke is due to speak on monetary policy Friday, "The main risk [to silver and Gold Prices] is that he might...reign in expectations of quantitative easing," says Standard Bank's Walter de Wet.

"This could prompt a pull back in precious metals, possibly amplified by profit taking ahead of the weekend...[But] we anticipate some seasonal jewelry demand to prompt some buying into dips."

Currently moving towards the peak of its post-harvest buying season, Indian gold demand will see the Hindu festival of Diwali end on 5th Nov

Adrian Ash

Head of Research

Bullionvault.com

You can also Receive your first gram of Gold free by opening an account with Bullion Vault : Click here.

City correspondent for The Daily Reckoning in London, Adrian Ash is head of research at BullionVault.com – giving you direct access to investment gold, vaulted in Zurich, on $3 spreads and 0.8% dealing fees.

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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This regions's food riots could set off the dollar crisis

From Sovereign Man:

...The Sri Lankan rupee has remained artificially suppressed against the dollar while agricultural commodity prices have been steadily rising in dollar terms. This makes food more expensive to locals in Sri Lanka.

To give you an example, prices for staple food items like coconuts have risen by 30% in the last two months, sparking calls by the left-leaning government to control prices and regulate consumer behavior.

We all know that these sorts of policies never end well...

Read full article...

More on the U.S. dollar:

The first signs of a dollar crash are showing up here

The most terrifying thing the U.S. government has said this year

Legendary advisor Jim Grant: The world is abandoning the U.S. dollar

View the original article here

Oct 24, 1907 - Jesse Livermore and the 1907 Crisis. A day I shall never forget

October 24, 1907.

Reports from the money crowd early indicated that borrowers would have to pay whatever the lenders saw fit to ask. There wouldn't be enough to go around. That day the money crowd was much larger than usual. When delivery time came that afternoon there must have been a hundred brokers around the Money Post, each hoping to borrow the money that his firm urgently needed. Without money they must sell what stocks they were carrying on margin-sell at any price they could get in a market where buyers were as scarce as money and just then there was not a dollar in sight.

My friend's partner was as bearish as I was. The firm therefore did not have to borrow, but my friend, the broker I told you about, fresh from seeing the haggard faces around the Money Post, came to me. He knew I was heavily short of the entire market.

He said, "My God, Larry! I don't know what's going to happen. I never saw anything like it. It can't go on. Something has got to give. It looks to me as if everybody is busted right now. You can't sell stocks, and there is absolutely no money in there."

"How do you mean?" I asked.

But what he answered was, "Did you ever hear of the classroom experiment of the mouse in a glass-bell when they begin to pump the air out of the bell? You can see the poor mouse breathe faster and faster, its sides heaving like overworked bellows, trying to get enough oxygen out of the decreasing supply in the bell. You watch it suffocate till its eyes almost pop out of their sockets, gasping, dying. Well, that is what I think of when I see the crowd at the Money Post! No money anywhere, and you can't liquidate stocks because there is nobody to buy them.

The whole Street is broke at this very moment, if f you ask me!" It made me think. I had seen a smash coming, but not, I admit, the worst panic in our history. It might not be profitable to anybody if it went much further. Finally it became plain that there was no use in waiting at the Post for money. There wasn't going to be any. Then hell broke loose.

The president of the Stock Exchange, Mr. R. H. Thomas, so I heard later in the day, knowing that every house in the Street was headed for disaster, went out in search of succour. He called on James Stillman, president of the National City Bank, the richest bank in the United States. Its boast was that it never loaned money at a higher rate than 6 per cent. Stillman heard what the president of the New York Stock Exchange had to say. Then he said, "Mr. Thomas, we'll have to go and see Mr. Morgan about this."

The two men, hoping to stave off the most disastrous panic in our financial history, went together to the office of J. P. Morgan & Co. and saw Mr. Morgan. Mr. Thomas laid the case before him. The moment he got through speaking Mr. Morgan said, "Go back to the Exchange and tell them that there will be money for them."

"Where?"

"At the banks!"

So strong was the faith of all men in Mr. Morgan in those critical times that Thomas didn't wait for further details but rushed back to the floor of the Exchange to announce the reprieve to his death-sentenced fellow members. Then, before half past two in the afternoon, J. P. Morgan sent John T. Atterbury, of Van Emburgh & Atterbury, who was known to have close relations with J. P. Morgan & Co., into the money crowd. My friend said that the old broker walked quickly to the Money Post. He raised his hand like an exhorter at a revival meeting. The crowd, that at first had been calmed down somewhat by President Thomas' announcement, was beginning to fear that the relief plans had miscarried and the worst was still to come. But when they looked at Mr. Atterbury's face and saw him raise his hand they promptly petrified themselves. In the dead silence that followed, Mr. Atterbury said, "I am authorized to lend ten million dollars. Take it easy ! There will be enough for everybody!" Then he began. Instead of giving to each borrower the name of the lender he simply jotted down the name of the borrower and the amount of the loan and told the borrower, "You will be told where your money is." He meant the name of the bank from which the borrower would get the money later. I heard a day or two later that Mr. Morgan simply sent word to the frightened bankers of New York that they must provide the money the Stock Exchange needed.

"But we haven't got any. We're loaned up to the hilt," the banks protested.

"You've got your reserves," snapped J. P.

"But we're already below the legal limit," they howled "Use them! That's what reserves are for!" And the banks obeyed and invaded the reserves to the extent of about twenty million dollars. It saved the stock market.

The bank panic didn't come until the following week. He was a man, J. P. Morgan was. They don't come much bigger.

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