Gold News

Gold dips as US stocks whacked by Bernanke

Gold whipped violently as London's traders knocked off for the day and left New York to push the metal back to $632 per ounce.

US stocks also took a hit after the US Fed chairman shocked Washington by speaking sense for once.

"It's Bernanke that is taking the markets down," said one trader. "The [economic] figures that we had just before he spoke were rather supportive."

But Chairman Ben wasn't talking about today's economic outlook. He spooked the politicians on Capitol Hill by simply noting the "fiscal crisis" that will hit the US as its Social Security, Medicare and Medicaid programs bankrupt the world's richest nation.

"If early and meaningful action is not taken, the US economy could be seriously weakened, with future generations bearing much of the cost," said Dr.Bernanke.

"Unfortunately, we are experiencing what seems likely to be the calm before the storm."

Gold worked up a storm of its own Thursday, pushing higher against all currencies before the pullback. It made its strongest gains versus the Yen and Euro, which were both sold hard on the foreign exchange markets.

Sterling pushed the Yen to a four-year low, and held a 30-month high versus the Euro.

"Sterling's rally is in sympathy with the forthcoming retail sales data tomorrow," said a currency strategist at Societe Generale. "Clearly the markets have some inkling that the consumer has been a bit a naughty and been out spending at Christmas."

Thursday's data from the British Chambers of Commerce showed strong demand for goods and services in December. That led UK firms to push up their prices at the fastest rate in nearly a decade.

And all this comes after the Bank of England raised interest rates last week, but the extra returns to savers were gobbled up by soaring inflation reported on Tuesday.

But gold proved the strongest global currency on Thursday, outstripping gains in everything else to close European trade at its highest level since Jan. 5th.

Technical readings of the gold charts advise caution, however. Karen Jones, analyst at Commerzbank, says that "although generally positive longer term, we suspect that the $730 high will not be surpassed in 2007 and that the market may simply consolidate within the $560 to $730 range."

"We might have a bit of correction coming through in the very short term," said Michael Widmer, analyst at Calyon Corporate & Investment Bank. "There are a lot of resistance levels before we can go up towards $850."

But gold's longer-term outlook remains strong, says Roberts of Barclays Capital.

"The market is dull for the time being, but later on this year we think it's going to be a lot more exciting."

The time to buy, of course, is when everyone else is looking elsewhere. If gold looks boring today, why wait until the excitement's started – and the price has already shot higher?

Booming prices pack all other asset markets today. Bonds, equities, global real estate...the excitement's so great, you might even call it "irrational".

And irrational markets make people do the funniest things. Find out more by clicking here now...

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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