Gold News

Gold sinks as Europe closes and US stocks fall

Gold dropped sharply as the European markets closed and left New York and Chicago to trade by themselves on Tuesday.

The drop – down from $652 to below $646.50 inside 2 hours – came as stocks prices also fell sharply.

The FTSE Eurofirst 300 index closed 1% lighter at 16:30 GMT, hitting its lows for the day as US financial stocks plunged on fresh warnings of a slowdown in the US economy, driven by bad news from the low-credit portion of America's home-loans market.

In Washington, the Commerce Department said US retail sales fell sharply in February. The Mortgage Bankers Association warned that home-loan delinquencies have just risen for 12 months straight.

Accredited Home Lenders, one of America's ailing subprime lenders, saw its stock drop 55% after announcing it needs to raise cash to repay its own creditors more than $190 million.

"Mortgage defaults have been weighing on stocks," said one New Jersey fund manager to Bloomberg earlier.

"Things are going to get worse before they get better." (How much worse? Click here to find out...)

Despite the weakening of the US economy, gold slipped against all major currencies as New York headed towards lunchtime.

Versus Sterling it hit £333.80 per ounce, down more than £5 from Tuesday's top. Against the Euro, gold dropped to €487 – also a one-week low.

For Japanese buyers, the Yen price of gold sank to ¥75,000 per ounce, a level it broke at the start of 2007.

Meantime in the official sector, Germany's central bank – the Bundesbank – said today it has no plans to start selling gold into the open market at present.

A member of the European gold-sales agreement, the Bundesbank is allowed to sell up to 120 tonnes of the metal each year.

So far, however, it has refrained from using its entitlement, allowing other, smaller central banks to sell gold under the terms of the agreement.

The Bundesbank will not increase its gold sales in 2007, said its president, Axel Weber – currently pegged at a mere 8 tonnes. No firm decision has yet been made about 2008.

(What's happening to central bank gold sales globally right now? Click here to read more...)

And longer-term, gold's new-found friends at the major investment houses on Wall Street and in the City, remain positive.

"We are still bullish and see $725-$750 an ounce into the next year," said Michael Lewis, global head of commodities research at Deutsche Bank.

"But for the time being, we are pretty comfortable with the current $640-$660 level,"

Christopher Wyke, a manager of emerging-market debt & commodities at Schroders, said today that he believes the commodity bull market could yet have another 10 years to run.

To read more about the long-term fundamentals under-pinning the gold market in 2007, click here now...

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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