Gold Breaks $1000 Level Again

For Tuesday, Sep 8:

Sentiment
Asian stocks opened higher today. The following factors affected the sentiment in financial markets:

- Finance ministers and central bankers from the G20’s members pledged not to unwind their recent efforts too soon until seeing signs of financial stability and sustainable recovery.

- Business indicators were mixed. Australian business sentiment rose more than expected, signaling that the economy may grow faster than previously estimated which may increase pressure on the RBA to raise the cash rate sooner. However, another report showed that the Japanese trade balance fell in July, adding to worries that the economy in overseas may be still far from a strong recovery.

Gold Rose
Investors coming back from the Labor Day holiday found many reasons to buy gold, finally pushing the price above the 1000 dollar per ounce for the first time in six months.

First, some investors are increasingly worried about the risk of inflation as they think that the policymakers may find themselves unable to control the inflationary consequences of printing and pumping money into the system when the world economy start growing.

Second reason was the dollar weakness, which tends to make the gold more attractive for the foreigners by making it cheaper in their currencies.

Dollar weakness itself was mostly because of worries about the widening U.S. budget deficit and to some extent from the increase in risk-appetite and carry-trading though the Japanese yen, the main source of funding in carry trading, remained relatively stronger as the comments from the newly elected party in Japan suggested that they may be less interested in currency intervention. The later tends to make holding of the yen less risky.

Sterling’s Reaction
From the calendars’ perspective, the pound was under pressure as it was expected that the UK manufacturing and industrial production show small increase. However, the weakness of its counterparts changed the balance in favor of the pound appreciation. The trend strengthened when the economic data came much better than those estimates.

The following charts show the market reactions: