Gold News

Gold drops hard - touches €500 per ounce

Gold sank as US traders got back to their desks after the long holiday weekend today.

By the PM Fix in London, gold had fallen $5 from the European opening to $663.90 per ounce.

It continued falling as New York headed towards lunchtime, touching $657.60 amid its sharpest drop in more than two weeks.

Gold's sudden decline against the Dollar was matched in the other leading currencies. By late afternoon in London, the metal traded at £336 for British investors – its lowest point in 10 days.

Against the Euro, gold fell all the way back to €500 per ounce, previously seen as a critical level by chart-watching analysts.

Pundits across the newswires today put the drop down to a sudden fall in oil prices. Crude oil futures traded in New York sank 3.5% this morning on news that the US cold snap is drawing to a close.

Meantime in the gold market, extreme "long" bets on the metal just preceded today's drop, according to data from the CFTC.

In the week ending Feb. 13, speculative long positions outnumbered short positions by 124,750 contracts – the greatest gap since May last year, when gold touched a 26-year high above $730 per ounce.

"Positioning is at relatively extreme levels and we would not buy gold here," said Robin Bhar, an analyst at UBS in London, in a report yesterday.

"We would rather wait for a correction to get long."

Gold had recovered the $672 mark in thin Asian trade today, but gave it all back as Europe opened for business.

By the time trading began in London, gold had dropped below $670 per ounce.

"The markets have been very subdued and that's left gold with little price movement," said one trader to Reuters.

South Korea and Malaysia re-opened today after the Lunar New Year festivities. The strong physical markets of Hong Kong and Singapore remain closed until tomorrow (Weds). Taiwan and China's domestic markets will be closed all week.

"There's just very little to trade on at the moment," said a Tokyo broker. But this week should bring a clearer picture for Japanese investors.

The Bank of Japan today began its 2-day meeting to decide Yen interest rates.

Unlike last month, when the currency markets were caught out by a shock vote to "stick" at 0.25%, analysts and economists are split over what governor Toshihiko Fukui and his team will announce on Thursday.

Twenty-seven out of 52 economists polled by Bloomberg predict no change. Credit Suisse reckons there's a 62% chance of a rate hike to 0.5%.

This uncertainty hit the Yen hard overnight on the foreign exchanges, knocking it lower against 15 of the 16 most-actively traded currencies.

"Even if the BOJ does [raise]," says Seiichiro Muta, director of foreign exchange at UBS in Tokyo, "there will be no additional rate hike for a long time. The Yen will remain weak."

Hedge fund traders and investment bankers the world over are praying the Yen does indeed remain weak. What could a sudden spike in the Japanese currency do to the so-called "carry trade" that's fueled asset-price gains in stock and bond markets from Mumbai to Budapest?

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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