Gold News

Gold struggles at $660 as Iran's nuclear row comes to a head

Gold recovered the $660 mark in Asian trade today, but slipped back to yesterday's lows as Europe headed towards lunchtime.

Against Sterling gold has been trading between £336 and £339. Eurozone prices have ranged from €500 to €503.50 since gold dropped 1.5% against all major currencies just as New York opened on Tuesday.

The reason for gold's sudden drop yesterday, down from fresh 7-month highs to key levels against the Dollar, Sterling and Euros?

"Gold edges lower as Dollar recovers slightly," say Forbes.

"A rising Dollar eroded the appeal of the precious metal as an alternative investment," agrees Bloomberg – also missing the move versus other currencies.

"Gold on defensive as energy falters," chips in Reuters, even though gold's weekly movements on average have little to do with movements in oil. And the newswires also cite easing tensions over Iran's nuclear ambitions.

Today marks the UN deadline for Iran to halt its nuclear enrichment program. On Tuesday, however, president Mahmoud Ahmadinejad in Tehran said Iran has no problems with the idea of halting its nuclear program.

All it wants is "fair talks" with the West.

But the US military build-up grinds on. "The US Navy is heading into the Strait of Hormuz," said Peter McGuire of Commodity Warrants Australia earlier.

"I am pretty sure they are not over there for water-ski practice and a picnic. With the ongoing issues in the Middle East I am expecting gold to be a lot higher."

The BBC in London also reports that the US has contingency plans to attack Iranian nuclear sites. Washington is waiting on confirmation that Iran has been developing nuclear weapons, or has been involved in strikes against US forces in Iraq.

"Some investors buy gold in times of political uncertainty," notes Bloomberg. "The metal jumped 5.3% after the Sept. 11 terrorist attacks on the US."

Gold also rose nearly 25% in the weeks leading up to the US-British invasion of Iraq. It pulled back immediately afterwards, however, before rising along the long-term uptrend begun in early 2001.

Back to this week's drop in gold so far, and "we were expecting such a move to happen after seeing sharp gains in the last few weeks," said one Tokyo analyst earlier today to Reuters.

"Gold may be put under more pressure, but we are watching whether it can hold above $655 in the near term."

"Gold is generally in downward pressure," added another Japanese analyst, "as funds look keen to lock in their profits, but I think it will be supported as there is plenty of gold ETF-related buying."

The shock of Tuesday's drop – perhaps led by the weight of speculative long positions built up by US traders last week – may encourage fresh buying, too.

"You would expect a technical bounce and bargain hunting to emerge," reckons Simon Weeks, head of precious-metals trading at ScotiaMocatta.

In the currency markets, the Yen continued to fall today despite the Bank of Japan raising its interest rates to 0.5%.

"The BOJ's rate rise gave no big surprise to move the Yen sharply, so gold was generally calm [in Tokyo]," said one market analyst.

The move in Yen rates leaves Japanese investors earning 4.75% less on their bank deposits than the US Dollar now offers. Right across the developed world, in fact, real interest rates – accounting for inflation – continue to look bullish for gold.

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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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