Gold Stumbles

By Glenn Dyer | More Articles by Glenn Dyer

Gold prices stumbled late last week as better than expected US economic figures were released and worries emerged about the health of a hedge fund investor in commodities.

Gold tumbled $US 11 an ounce in New York to end just over $US 652, clipping the best advance in six months.

Fewer jobs were created in the US last month than forecast and other figures on Friday and over the week drove home the realisation that the US economy is doing moderately well, although there’s still an inflationary tone in some of the figures.

But oil surged past $US59 a barrel in New York trading late Friday and that should be enough to get the gold bulls pawing the ground once the situation at the Red Kite hedge fund is worked out

US employers added 111,000 workers last month compared to a revised 206,000 increase in December. That was well under forecasts of up to 150,000 jobs. The unemployment rate edged up to 4.6 per cent.

The change in weather to deep winter last month probably had as much to do with that as the mild weather in December had to do with the performance for that month.

Up to last Friday gold and other commodity prices had edged to some of the highest levels in six months.

Gold rose four per cent in January, doing better than copper and oil: so far this month (I know its only two days!), oil is the hot commodity but the one with the inflationary potential

Gold has also strengthened on the generally weaker US dollar although should the instability in the metals market continue for more than a day or two, hedge funds and other punters will switch into US dollar bonds and cash as a haven.

Meanwhile there’s another development that could end up being good for gold this year.

The International Monetary Fund has been told it should sell gold worth $US6.6 billion and invest the proceeds in higher-yielding assets as part of a strategy to put its finances on a sound, long-term footing.

An expert panel reported last week that the Fund should also start charging countries for the bilateral technical assistance it provides to countries: but not poorer nations.

The panel included former Fed chairman, Alan Greenspan, and Jean-Claude Trichet, the current head of the European Central Bank. They said in a report that the sale of 400 tonnes of gold would create an endowment fund that would earn the IMF $US 195m a year in additional revenues after inflation.

The IMF holds 3,217 tonnes of gold in total and to offset the impact on the gold market, the panel said central banks should curtail their planned gold sales (all set out in an internationally-negotiated agreement) by an equivalent amount until the IMF had completed raising the new money.

The panel was charged with looking at new funding sources for the IMF because it’s facing growing financial strains from falling income on lending as cash-rich countries repay assistance loans more quickly than planned.

(That’s an upside to the easy money regime in the financial markets at the moment).

Some critics claim the IMF should cut costs but the eventual plan will probably contain a bit of both.

Besides the gold the panel suggested the IMF should put its capital (subscribed by countries like Australia) to work in financial markets. All up there could be as much as $US30 billion in capital, reserves and gold, which could earn up to $US300 million a year after interest paid on its capital top member countries.

Agreement on any IMF gold sales will need the approval of 85 per cent majority of the Fund’s shareholders and the US Congress.

But there commentators say the change in control in the recent US elections to the Democrats increases the prospects of some sort of deal; with the Republicans and especially the hard right conservatives usually deeply suspicious of international groups like the Fund, The World Bank and the United Nations.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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