Gold sparkles to a 16-year high as greenback slumps
By Malcolm Moore, Economics Correspondent
By Malcolm Moore, Economics Correspondent
Last Updated: 5:42PM GMT 26 Nov 2004
Gold broke through the $450-an-ounce barrier yesterday, rising to a 16-year high as the dollar fell to a new record low against the euro.
Volumes were thin, since the US market was closed for Thanksgiving, as gold rose $3.70 per troy ounce to $452. The dollar fell to $1.3233 against the euro and to $1.8888 against sterling.
Gold, which has risen 13pc since September, has been "primarily driven" by the weakness of the dollar, according to Kamal Naqvi, a precious metals analyst at Barclays Capital. He believes the next resistance level for gold is "about $461". Gold has risen by $59.75 in the past year but only by £8.18 in sterling terms in the same period.
The fall in the dollar was partly triggered by bearish notes from UBS, Merrill Lynch and JP Morgan, which account for about a fifth of the currency markets between them. Merrill cut its March forecasts for the dollar to $1.39 a euro from $1.33 and JP Morgan cut its estimates to $1.37 from $1.30. All three said the dollar is being undermined by the record US current account deficit. As the gap widens, more dollars need to be exchanged for foreign currencies to pay for imports.
Charlie Bean, the chief economist of the Bank of England, warned the large current account and fiscal deficits in the US could trigger "a further - possibly substantial - decline" in the dollar. He said: "At some stage, action will have to be taken to close the US fiscal deficit and when that happens, the real value of the dollar will need to fall if a sharp slowdown is to be avoided there.
"In the mid-1980s, the elimination of the twin US fiscal and current account deficits - then around 3pc of GDP - was accompanied by a fall of around 30pc in the real trade-weighted value of the dollar." Since February 2002, the dollar has only fallen 15pc in real terms. He added that sterling has historically been "relatively stable" in its movement against the dollar and the euro.
Nicolas Sarkozy, the French finance minister, urged the US to cut its twin deficits yesterday, saying "it is absolutely essential so their currency does not skew trade".
The surge in the euro against the dollar sapped German business confidence this month, the country's Ifo economic institute said yesterday. It warned the rise could threaten Europe's largest economy and urged intervention in the currency markets.
Gold will continue to rise as the dollar weakens, analysts predicted, but the price rise has not boosted the share price of gold miners. The FTSE Global Gold Mines Index has fallen this week, and is below its annual high of 1892.90 on January 2, when the gold price stood at $383 an ounce.
Gold broke through the $450-an-ounce barrier yesterday, rising to a 16-year high as the dollar fell to a new record low against the euro.
Volumes were thin, since the US market was closed for Thanksgiving, as gold rose $3.70 per troy ounce to $452. The dollar fell to $1.3233 against the euro and to $1.8888 against sterling.
Gold, which has risen 13pc since September, has been "primarily driven" by the weakness of the dollar, according to Kamal Naqvi, a precious metals analyst at Barclays Capital. He believes the next resistance level for gold is "about $461". Gold has risen by $59.75 in the past year but only by £8.18 in sterling terms in the same period.
The fall in the dollar was partly triggered by bearish notes from UBS, Merrill Lynch and JP Morgan, which account for about a fifth of the currency markets between them. Merrill cut its March forecasts for the dollar to $1.39 a euro from $1.33 and JP Morgan cut its estimates to $1.37 from $1.30. All three said the dollar is being undermined by the record US current account deficit. As the gap widens, more dollars need to be exchanged for foreign currencies to pay for imports.
Charlie Bean, the chief economist of the Bank of England, warned the large current account and fiscal deficits in the US could trigger "a further - possibly substantial - decline" in the dollar. He said: "At some stage, action will have to be taken to close the US fiscal deficit and when that happens, the real value of the dollar will need to fall if a sharp slowdown is to be avoided there.
"In the mid-1980s, the elimination of the twin US fiscal and current account deficits - then around 3pc of GDP - was accompanied by a fall of around 30pc in the real trade-weighted value of the dollar." Since February 2002, the dollar has only fallen 15pc in real terms. He added that sterling has historically been "relatively stable" in its movement against the dollar and the euro.
Nicolas Sarkozy, the French finance minister, urged the US to cut its twin deficits yesterday, saying "it is absolutely essential so their currency does not skew trade".
The surge in the euro against the dollar sapped German business confidence this month, the country's Ifo economic institute said yesterday. It warned the rise could threaten Europe's largest economy and urged intervention in the currency markets.
Gold will continue to rise as the dollar weakens, analysts predicted, but the price rise has not boosted the share price of gold miners. The FTSE Global Gold Mines Index has fallen this week, and is below its annual high of 1892.90 on January 2, when the gold price stood at $383 an ounce.
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