Gold News

Gold pulls back as London closes

Spot gold prices traded up to $649 as the US opened today, before pulling back to $646 per ounce just after the London close.

All told, however, gold stood more than 1% above the low hit on Wednesday, buoyed by a rally in global equity prices.

Asia-Pacific stocks closed more than 1% higher on average this morning. The Nikkei 225 in Tokyo added 1.5%.

"The lack of confidence in the equity sell-offs became evident when the Dow regained its lost ground to finish 0.48% in the black," as Brandon Lloyd puts it for Mitsui.

"[In gold] there was a sense of deja vu as everyone was caught short, prompting the rally back to this morning's $643-$644 area."

Gold's positive correlation with equity prices, in short, continues to grow. (Click here for more on this relationship between bullion and stocks...)

But "gold is likely to regain its lustre once investors and traders realize the slide was a poor cousin of a spillover effect of equity markets and that gold's fundamentals remain very much intact," said Pradeep Unni, an analyst at Vision Commodities Services in Dubai, earlier today.

"Under the current conditions of global financial market liquidity crunch, however, such a turnaround would take significant time to bear fruit."

In the meantime, gold bullion investors may also expect further long-term gains thanks to today's US inflation data.

Higher energy costs, said the Labor Department just before the Wall Street open, lifted the Producer Price index by 1.3% in Feb. – well above Wall Street's 0.5% expectation.

Excluding volatile food and energy prices, the "core" PPI rose 0.4% – twice the consensus forecast.

Tomorrow, the Labor Department will issue its Consumer Price inflation data for last month. Economists only expect "moderate gains" according to Reuters.

But anything greater, and the gap between US interest rates and the rate of inflation will shrink.

Poor returns on Dollar cash deposits have always led to rising gold prices – at least, that's what history says.

And with subprime mortgage lenders continuing to struggle, the US Federal Reserve may find it impossible to raise Dollar interest rates – even in the face of rising inflation.

Click here to read why...

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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