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THE PRICE OF PHYSICAL gold bullion moved in a tight 0.8% range early Thursday, re-touching yesterday’s new all-time high above…

… $992 per ounce as the US Dollar sank once again.

As the opening drew near in New York – where a small bomb damaged an army recruitment center in Times Square overnight – crude oil jumped to a new record above $105 per barrel.

European stock markets meantime ticked 0.3% lower as the Euro single currency leapt to a new all-time high of $1.5345 after the central bank in Frankfurt kept its interest rates on hold at 4.0%.

“We could see Gold Prices spike this year and hit $1,500 per ounce,” reckons Jay Taylor, editor of the Gold & Technology Stocks newsletter.

Peter Spina of Goldseek.com, also speaking to Reuters, agrees that $1,500 or even $2,000 gold is “definitely possible” in the next year, while Peter Schiff of Euro Pacific Capital says “gold has a shot at $1,200 or even $1,500 this year.

“It is a measure of the value of currencies and will go up as long as central banks continue to devalue currencies.”

Facing the fastest rate of Euro devaluation since the currency was launched in 1999, the European Central Bank today held its interest rates at 4.0% even after German factory orders showed a surprise 1.5% drop for January.

The Euro now pays fully 100 basis points more than the current US Fed funds rate, widely expected to fall another 75 points to 2.25% when the US central bank next meets on March 18th – and “there are pretty clear expectations for a further widening in interest rate differentials with the United States,” says Tomoko Fujii, head of strategy at Bank of America in Tokyo, “keeping the Dollar at a disadvantage.”

But within the 15-nation Euro currency zone, government bond yields point to growing pressures internal to the monetary union. “Club Med bonds have been hit hard,” says Mark Ostwald of Insinger de Beaufort, referring to Italian, Greek and Spanish government debt.

“People have realized that countries like Italy and Spain have not carried out the reforms needed to control wages and boost productivity, and are now getting into trouble,” he told The Telegraph in London overnight.

Today’s Il Sole newspaper in Rome reports that the Italian Treasury has now stepped into buy up its own government bonds to support their price, because the “spread” between Italian bond yields and the return offered by German bunds – the benchmark for Euro debt – has reached a post-union record of 0.55%.

“A similar pattern has emerged across the southern belt of the Eurozone,” says The Telegraph, “with spreads hitting post-EMU highs of 53 basis points versus Greece, 44 for Portugal, 38 for Belgium and 36 for Spain.”

The British Pound meantime jumped today to a new high for 2008 above $2.00 after the Bank of England voted to keep its interest rates on hold at 5.25%. That move kept the yield-gap with US Dollars at 225 basis points, and it knocked the Gold Price in Sterling 0.7% off Wednesday’s near record high.

Despite the UK’s relatively high interest rates, however, the British Pound has now lost two-thirds of its value against Gold Bullion since the current prime minister, Gordon Brown, famously sold off half the UK’s official gold reserves back in June 1999 – the very bottom of the metal’s two-decade bear market.

On Monday this week the Pound hit a new all-time low against gold, worth just 1/498th of an ounce.

Inflation of the UK money supply, meanwhile, was last pegged at 12.9% in the year to January. The world supply of gold bullion, in contrast, grew by less than 1.6% during 2007 according to data from the GFMS consultancy in London.

New Gold Mining Output added just 2,447 tonnes to the existing above-ground stock – a drop of 3% from 2006 and lower than all-but-one year of this decade’s bull market so far.

“Shortages are developing because production is declining,” says Jim Rogers, legendary commodities investor and author of the best-selling Adventure Capitalist, in a new interview with Reuters.

“People have been telling me for five years that oil prices are going down. Every time I ask them where the supply is coming from [but] so far, nobody has been able to tell me.

“Oil fields are in decline, copper mines are in decline. Whether it’s oil, wheat or sugar, the world does not have new production capacity.”

Platinum prices fell sharply early Thursday on news of a new energy agreement in South Africa – the No.1 producer of the industrial metal – where miners are now expecting 95% of normal power supplies, up from the 90% imposed since late January.

Over in India – where private Gold Buying accounted for one ounce in every five sold worldwide last year – current demand remains “very, very slack” due to the record high price says Prithviraj Kothari of Riddisiddhi Bullions in Mumbai.

“But there are many people who are short at around $980 an ounce levels,” he said this morning. “They have to cover up soon.”

And with the spring wedding season fast approaching, “there are people waiting in the sidelines to buy,” says Sanjiv Agarwal at Reva Corp Ltd. “They want to see some stability.”

Buying activity gathered momentum today, reports Livemint – the Wall Street Journal’s New Delhi service. “The Gold Market doesn’t seem to be giving up its momentum,” one analyst at IL&FS Investsmart Commodities told the newswire.

“There is no negative news [for gold] so far to help in profit taking.”

The local Gold Price in New Delhi today hit a new record high above 13,050 Rupees per 10 grams.

Adrian Ash
BullionVault

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 – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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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Orders for manufactured goods have decreased on the month for the second consecutive time on lower domestic demand, and declining orders for capital goods, as the latest report by the German Economic Ministry shows.

The total volume of orders for manufactured goods has declined 1.5% from December to January, when the experts had forecasted a fall of around 0.5%. On the year, manufacture

Figures for the month of December have been revised up to a 1.1% monthly decrease, from the 1.7% fall previously estimated, and the year on year performance has been revised to a 6.2% gain, from the 5.6% increase released previously.

Among the several reasons for Januarys decrease the German economics Ministry has underlined the 1.2% fall in producer goods orders, and the 1.8% decrease in capital goods orders, orders for consumer goods have fallen 0.6% in January. Domestic orders have fallen 1.9% on the month.
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Sterling initially looking to bounce against the Japanese Yen.

The pound slid to an all-time low against the euro on Wednesday as weak consumer and business confidence and soft employment data reinforced the case for Bank of England rate cuts.

British consumer confidence fell to its worst since comparable records began four years ago, according to a survey from Nationwide

The pound briefly pared losses after UK services PMI data came in stronger than expected highlighting inflationary pressures facing the Bank of England.

The following technical analysis gives us a detailed lookout on what is expected to happen to GBP/JPY.

The buying point is at 206.40; based on a break of the standard error channel.

• Previous resistance and Fibonacci 50% is the take profit at 208.50
• Previous support is the stop loss at 204.39

The selling point is at 208.50; based on a fail of breaking the resistance.

• Previous support is the take profit at 205.10
• Fibonacci 61.8% is the stop loss at 209.73

To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the crossing of MACD line to the signal line and pointing upwards. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in an uptrend.

The ROC oscillator is very important to understand the demand in the market and as we see on the graph it is in a bullish direction. The Stochastic oscillator crosses %D line below 20% level and continues to go higher.

The following analysis is for information only; Finotec is not responsible for any decisions or misinterpretations based on the given text.

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Disclaimer: FINOTEC Tradings Market Commentaries are provided for informational purposes only. The information contained within these reports is gathered from reputable news sources and not intended as investment advice. FINOTEC Trading assumes no responsibility or liability from gains or losses incurred by the information herein.

• US Dollar: Time to Shift Focus to Non-Farm Payrolls
• Euro Holds Near Record Highs

Record Breaking Day for the Dollar, Euro and British Pound

It has been a record breaking day in the currency market for the US dollar, Euro and British pound. Despite a stronger than expected service sector ISM report, the US dollar fell to an all time low against the Euro while the Euro climbed to an all time high against the British pound. It has been a volatile day in the currency market and even though service sector ISM rebounded, activity in both the manufacturing and service sectors are still contracting. The same can be said for the employment components of these reports, which is extremely worrisome ahead of Friday’s non-farm payrolls release. Not only could there be another month of job losses, but the job losses could be big. The ADP employment survey reported that 23k jobs have been cut from US payrolls in the month of February, the first net job loss in 4 years. The main reason why we think that non-farm payrolls could be very bad is because the last time service sector ISM contracted for 2 months in a row was back in late 2001. For those of you who remember, that was a particularly difficult time for the US economy. There was actually 15 consecutive months of job losses between 2001 and 2002 with -300k being the biggest monthly job loss during that period (Our full non-farm payroll preview is already published on DailyFX.com). The Beige Book report confirms that economic activity is weak across the nation. Two thirds of the areas surveyed reported softening or weakening activity and almost all areas reported higher material costs. As for the labor market, there have been pullbacks in hiring by some firms and increased layoffs, reduction in work hours or hiring freezes by others. The stronger ISM surveyed has pushed rate cut expectations back up to fifty-fifty for a 50 versus 75bp rate cut. Friday’s non-farm payrolls report could change those expectations dramatically as the fate of the March 18 Fed rate cut hangs in balance.

New Zealand Keeps Rates Unchanged, AUD and CAD Rise on Gold and Oil Prices

The Australian and Canadian dollars were the most market moving currencies today as oil and gold prices hit record highs. This was largely due to the weakness of the US dollar, but oil prices have also been pressured by legal actions between Exxon Mobil and Venezuela. The continual rise in oil prices has now pushed gas prices to a record high in many states. A local news station in California is even reporting that the Americo gas station in Gorda, just south of Big Sur is selling regular unleaded gas for $5.19 a gallon. If this trend continues, there is a decent chance that gas prices could hit $4 a gallon nationwide by this summer. The rise in gold prices is causing another rush. Prices are so high that regular people around the world are digging up their scrap jewelry to be melted and sold on the open market. Sooner or later, this may cause a flush of inventory that could trigger a reversal in oil prices. The growth in the Australian economy is beginning to moderate with fourth quarter GDP and service sector PMI in February falling short of expectations. Meanwhile the Reserve Bank of New Zealand left interest rates unchanged at 8.25 percent. Even though the statement highlighted risks to both growth and inflation and the central bank said up that they will keep rates on hold for a significant period of time, RBNZ Governor Bollard warned that the New Zealand dollar is exceptionally and unjustifiably high against the US dollar. Does this mean that they will intervene in the NZD? Maybe, but as we have seen from their past intervention, there should not be a lasting impact on the currency. Australia will be releasing their trade data tonight and Canada will be releasing IVEY PMI tomorrow; expect more active trading in the commodity currencies.

ECB Trichet Expected to Keep Interest Rates and Bias Unchanged

The European Central Bank is not expected to alter interest rates at tomorrow’s monetary policy meeting. Stronger economic data and continued inflationary pressures should also keep the tone and bias of Trichet’s post meeting press conference unchanged. Retail sales rose 0.4 percent in the month of January while service sector growth accelerated in both France and Germany during the month of February. The continual rise in oil and food prices is boosting inflationary pressures and the risk of second round effects, which is the ECB’s greatest fear. They need interest rates and their currency to remain high in order to have any chance of bringing inflation back down to their target. Therefore comments from Trichet could drive the EURUSD even higher.

Bank of England: Still Dovish

Like the European Central Bank, the Bank of England is expected to leave interest rates unchanged tomorrow. Although they face inflationary pressures like the ECB and recent economic data including today’s service sector PMI was stronger than expected, their monetary policy statement should still contain a tinge of dovishness. UK growth faces more immediate risks than Eurozone growth which is why their bias should be different from the ECB’s and why the EURGBP hit an all time record high today. We expect this trend to continue as we believe that the monetary policies of the ECB and BoE lead to further EURGBP strength. As for the GBPUSD, the anticipation of a weak non-farm payrolls report on Friday could help keep the GBP/USD near its year to date highs.

Japanese Firms Hit by USDJPY Weakness

All of the Japanese Yen crosses are up strongly today thanks to a recovery in US stocks. The price action in the Yen crosses suggest that we could see a more meaningful rally which is supported by the stories in today’s Wall Street Journal. According to the financial paper, Japanese firms are beginning to suffer as a result of the dollar’s weakness against the Yen. In the fourth quarter for example, Toyota Motor Corp approximately $194 million in currency related losses. We expect this trend to continue

DailyFX

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Dollar falls to another record low against Euro and weakens across the board along with the Japanese yen after a volatile session on Wednesday. Dollar’s weakness was initially limited after mixed job data from US which provides no hints on how the NFP on Friday will be. However, better than expected ISM services reading boosted stock higher, which in turn hammered the Japanese yen on improved risk appetite. Most major currencies then rode on strengthen in respective yen crosses and strengthened against the greenback. Also, the Fed’s pessimistic Beige book provided little support to the dollar.

ISM non-manufacturing index rebounded strongly from 44.6 to 49.3 in Feb, very close to 50 contraction/expansion level. In addition, the business activity index also rebounded stronger from 41.9 to 50.8. Employment component improved mildly from 43.9 to 46.9. meanwhile, price paid component continued to retreat and dropped from 70.7 to 67.9. While the data still suggest a contraction in non-manufacturing industry in the near term, the pace could be much slower than previously expected.

Employment data released today was mixed. The private ADP employment report showed -23k contraction in the job market in Feb, comparing to expectation of +20k expansion. Prior month’s growth was also lowered from 130k to 119k. However, the Challenger report showed that layoff announcements fell slightly from 75k to 72k in Feb. After all, the ADP employment report has lost its predictive value to NFP in recent months and the conflicting signal certainly gave no help in predicting Friday’s NFP.

Other data from US saw Q4 productivity at 1.9% vs expectation of 1.9%, labor costs growth at 2.6%, much stronger than expectation of 2.1%. Factory orders dropped -2.5% in Jan, inline with consensus.

Fed’s Beige Book was generally pessimistic. Two-thirds of Fed districts reported weakening growth since last report. The slowing in economic activities was broad-based, extending further to manufacturing, retail and non-financial services. More than half of the districted reported retail sales as "below plan, downbeat, weak or having softened". COnditions in non-financial service industries were downgraded to "mixed". Manufacturing was "subdued". Residential real estate was "generally weak". More districts also reported "some loosening" in the labor markets", with "pullbacks in the pace of hiring" and "increased prevalence of layoffs". Markets are generally increasing bets for Fed to cut rates by another 75bps on Mar 18.

RBNZ left the Official Cash Rate unchanged at 8.25% as widely expected. In the accompanying statement, RBNZ noted that there is "more uncertainty than usual" with downside risks to growth and upside risks to inflation. Hence, then bank judges to OCR needs to remain at current level for "a significant time" to ensure inflation remains around target over the medium term.

Australia trade balance, Japan leading indicators and machine tools orders will be released in the coming Asian session, but markets will remain cautious with BoE and ECB rate announcements scheduled later in the day.

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The European Central Bank is not expected to alter interest rates at tomorrow’s monetary policy meeting.

Stronger economic data and continued inflationary pressures should also keep the tone and bias of Trichet’s post meeting press conference unchanged. Retail sales rose 0.4 percent in the month of January while service sector growth accelerated in both France and Germany during the month of February. The continual rise in oil and food prices is boosting inflationary pressures and the risk of second round effects, which is the ECB’s greatest fear. They need interest rates and their currency to remain high in order to have any chance of bringing inflation back down to their target. Therefore comments from Trichet could drive the EURUSD even higher.