Gold ends 2006 more than $100 higher - 29 December 2006

Gold closed the last Asian session of 2006 more than $100 higher for the year at $634.60 per ounce.

Despite falling slightly from Thursday's close in New York, gold has opened steady in Europe too – well above $629, the 30-day moving average it broke earlier this week. Bloomberg reports Tokyo traders hoping it could break $640 in the next few days.

"Iran is one thing pushing up gold prices, which is prompting investment funds to allocate new money to gold ahead of the new year," said one Japanese analyst overnight.

"More new funds are expected to head into gold next year and they are expected to provide solid support in the near term. The factor about Iran is not a strong factor, but the market is currently more sensitive in reacting to bullish factors."

Western analysts, however, remain fixated on the US Dollar as gold's No.1 influence. "Weakness in the Dollar is clearly driving this gold market higher," says Carlos Perez-Santalla, president of Hudson River Futures in New York. "Economic figures coming out from the US last night were exceptionally strong," added another analyst in Sydney. "There might be chance the [US Fed's interest] rate could go up again."

But just this morning came news that the supply of money in Europe – which the European Central Bank (ECB) in Frankfurt uses to gauge future inflation – accelerated to grow by 9.3% in November from a year earlier, shooting higher from 8.5% growth in October.

Economists polled by Bloomberg had only expected an 8.6% increase. And this glut of Euros comes after the ECB has repeatedly warned in 2006 that it will raise interest rates if inflation becomes a threat.

2006 also saw many Asian and oil-rich central banks buying Euros, switching their foreign currency reserves away from the Dollar. The United Arab Emirates said on Christmas Eve that it will convert a portion of its Dollars into Euros. Iran, Venezuela and Indonesia have threatened to stop pricing oil in Dollars and demand Euros in payment instead.

But what if the Euro is found wanting, over-supplied and increasingly worthless? "The driving force behind gold's long bull market is that of central bank diversification away from the huge dominance of Dollar-denominated assets toward other reservable assets," says Dennis Gartman, editor of the famous Gartman Letter.

The Euro is the ultimate in fiat money, imposed on 12 different nations by the pan-national government of the EU. Now it is chasing the Pound Sterling in the race to inflate the global money supply. You can't blame central bankers in Asia for getting nervous about the value Western money. You can read more by clicking here now...