**15/09/10 - 9.06am - by James Gerrish**
Gold broke out from its recent channel overnight hitting a record high above $1270 per ounce . We suggested earlier in the week that Gold may be in for some type of profit taking based on the trend in the US Treasuries market which has had a relatively strong correlation with Gold over the last few months. This has not occurred and trading action last night now suggests that there will be further upside in Gold.
The impetus for higher prices last night came on the back of speculation that the Federal Reserve will purchase as much as $1 Trillion in bonds to support the US economy. The Fed have already confirmed that they are willing to act to support growth in the States and Quantitative Easing (printing money to buy back Government debt) is likely to be rolled out in the coming months.
Printing money to increase liquidity has a negative impact on the USD and this supports Gold as a store of value. From a physical sense, demand for Bullion from the Middle East and South East Asia is highest in September and October due to the festival season and this could further support prices. I'm still a little weary of Gold at these levels based on the obvious move out of defensives into risk assets but its hard to argue with the breakout overnight. I wouldn't be adding to Gold positions here but I stocks with existing exposure.
On the market last night, The DOW JONES lost -17 points or -0.16% to close at 10526. The FTSE 100 added +1 point or +0.03% to 5567. Locally, the SPI Futures are pricing in a drop of 10 points on the open.
The Aussie Battler has raced through our initial target (set 2 months ago) of US93c hitting a high overnight of 94.69c. There is real scope for the Aussie to trade to 96c then parity given over the coming months. This is largely driven by demand for commodities however we are seeing the start of an MA cycle that could be significant.
Charlie Aiken (Resource Bull) from Southern Cross Equities puts its like this....' With basically all commodities domiciled in USD, American and Canadian firms can buy Australian firms using USD converted at spot but keep the liability in USD and use the USD revenue to pay off the USD loan'. (at historically low rates).
This is a form of a Carry Trade - borrowing at cheap rates and investing in higher yield assets which makes our resource stocks attractive to overseas investors. Traditionally, Japan has been used as the funding country (due to long term low rates) but now the US is in play. Australia looks attractive for both Growth and Yield and this is going to be very supportive of the Aussie dollar in the coming months/years.
