Gold rose in Asian trading and after an initial sell off in early trading in London this morning, it has again rallied to over $949.00. Gold was up $14.30 to $949.10 per ounce in trading in New York yesterday while silver was up 62 cents to $18.32 per ounce. The London AM Gold Fix at 1030 GMT this morning was at $948.25, £470.60 and ‚¬600.31 (from $945.75 £473.68 and ‚¬602.01 yesterday).

Gold rallied back above $950 in Asia but has since given up those gains. The economic data yesterday was poor with durable goods orders falling significantly. Worryingly, there was the biggest slump ever in demand for machinery which likely indicates companies are becoming more reluctant to invest as the economy heads into a recession (or is already in recession).

More U.S. data is due today in the form of Q4 GDP data and weekly jobless claims. Further poor data will likely lead to further weakness in equity markets and in the dollar and prudent risk aversion.


U.S. monetary and fiscal policy (the guns and butter spending of the profligate Bush presidency) remain very expansionary and inflationary. Negative real interest rates with interest rates well below the official inflation figures is very inflationary and bullish for gold.

Asian Creditors Reject U.S. Assets

More bearish developments for the dollar is the news that one of its many large Asian creditors will no longer buy U.S. Treasuries. South Korea's National Pension Service plans to no longer purchase U.S. Treasuries, citing falling yields and an urge to pursue a broader range of foreign investments, news reports said. It is difficult to buy more U.S. Treasuries because the portion of our Treasury investment is already too big and Treasury yields have fallen a lot, said Kwag Dae-Hwan, head of global investments at the National Pension Service, according to a Financial Times report.

Agence France Presse quotes Tim Condon, head of Asia research at ING Barings in Singapore. The bottom line is that it would open up a can of worms.

China's foreign exchange reserves, the world's largest, hit 1.53 trillion dollars at the end of 2007, around 70 percent of which is believed to be in U.S. currency-denominated assets, particularly U.S. Treasuries. As part of efforts to diversify and boost returns on its massive foreign currency holdings, China has created a 200-billion-dollar state-controlled investment fund.

But if China suddenly announced it was selling a large chunk of U.S. Treasuries, the market would find that difficult to absorb, said Condon. On the day of the announcement, the dollar would go down sharply and Treasury bond yields would go up sharply, he said.

Bit by bit they (China) would like to get out of the intervention game. They would like to get to that more diversified bundle of reserve holdings in a way that doesn't disrupt financial markets too much, said Condon.

A reported drop in holdings of U.S. Treasuries by foreign official institutions in August last year triggered concern that countries including China were dumping U.S. assets.