INTERNATIONAL. The price of gold rose for the third day running on Thursday, hitting fresh 18-month highs during Asian trade as world equities gained 0.8% to new 2009 highs, before retreating as the dollar arrested its slide.

Spot gold was trading at US$1011.80 at 13.41pm New York time, down US$5.50.

Government bonds fell sharply, while crude oil held above $72 per barrel.

The Bank of Japan held its key lending rate at 0.1%. The Swiss National Bank was expected to stick at 0.25% at its policy vote.

"Yesterday's higher-than-expected US consumer-price inflation numbers spurred further gold investment demand," reckons Stefan Graber at Credit Suisse in Singapore.

"The move above US$1,000 is being warranted by fundamentals."

Documents leaked to Reuters say the European Union will urge continued monetary and fiscal stimulus at next week's G20 meeting of world leaders in Pittsburgh.

"Efforts must be maintained until recovery is secured," the documents state.

In the US, trade magazine Inside Mortgage Finance reports that over four-in-five of all new home-loans "benefited from some form of government support" in 2009 to date.

"There's no Asian [gold] demand at all because of higher prices" in the physical market however, according to Kate Harada at Mitsubishi Corp. in Tokyo.

"The current rally in precious metals is purely speculative and technically driven."

Despite a small upturn in gold imports to India – the world's No.1 consumer market – "Demand is dull and no one is committing to buy with prices nearing these peaks," said one Mumbai dealer to Reuters this morning.

"The overall appetite [for gold] has been hit."

Next month's Diwali festival will mark the peak of India's annual gold demand, and while "There is a demand for gold in the market, overall demand will be less by 30% during the forthcoming festive season," reckons Prithviraj Kothari, director at Riddhi Siddhi Bullions, speaking to the Economic Times on the sidelines of a conference earlier this week.

Outstanding volumes of US gold futures, in contrast, show a further 5% jump across the week-ending last night, adding to last week's near-record 17% rise in the number of Comex contracts now open.

Back here in London's professional wholesale market on Thursday, gold retreated from its early highs vs. the US Dollar to slip below last night's record closing high of US$1,018 an ounce.

The US currency meanwhile sank to new 12-months on the forex market, falling through US$1.4760 per Euro despite news of a faster-than-forecast contraction in European construction output.

Euro-strength capped the Gold Price for German, French and Italian savers below €695 an ounce, some 4.7% higher for Sept. so far.

Gold priced in Pounds Sterling touched a 4-month high at £620 an ounce.

"[Wednesday's] close above last week's high of US$1,012 keeps the bullish momentum in place," says the latest technical analysis of Dollar prices from bullion bank Scotia Mocatta, "with short-term price target seen at the 2008 high of $1,032.

"Tough to pick a measured target [for this move] based on the triangle pennant, due to its width. Suggest 'pole' was US$125 in length, so from the breakout level of US$965 indicates measured target of US$1,090.

"Only a close below US$990 neutralizes the bullish outlook."

Longer-term, "We are forecasting an average gold price of US$890 per ounce next year owing primarily to stronger economic growth and less investor interest in gold," says Caroline Bain, senior commodities editor at the Economist Intelligence Unit in London, speaking to ArabianBusiness.com.

Famously bearish on gold in the late 1990s and rarely commenting on its bull-market since, The Economist magazine said in Feb. this year that "Gold looks like a good each-way bet" just as it neared US$1,000 an ounce.

"If equity and other commodity markets continue to rise strongly and inflationary pressures start to emerge," Bain adds, "gold will be attractive as a hedge against inflation."

Note. Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen's Award for Enterprise Innovation, 2009 – where you can Buy Gold Today vaulted in Zurich on US$3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

• Top news
• Business News
• Company News