Gold News

Spot gold flat as pundits look to oil

Spot gold prices held steady for US buyers as New York headed towards lunchtime on Thursday.

Trading against the Dollar at $663 by the PM Fix in London – down $1 from the AM Fix – gold also dipped against the other major currencies.

"Technically gold has some resistance at $672," says the New York team at Mitsui, "but a break through of this level should point to the previous highs in the coming weeks.

"The rest of the precious metals have followed gold's direction and there is a firm tone across the market this morning."

Pundits and analysts also cite rising oil prices for the continued strength in gold today.

"There remains a relatively strong correlation between oil and gold," says John Meyer, an analyst at Numis Securities in London.

Crude oil today broke above $60 per barrel yet again. Bloomberg puts the move down to US refiners getting ready for the summer driving season.

"Both [oil and gold] are effectively reflecting the progress of the global economy," says Meyer. "While we continue to see global growth, we likely will continue to see inflation."

But watching oil before trading gold would have proven a losing strategy in 2007 so far.

What link there is between gold and oil prices failed to hold firm even during the "commodity bull" of the last half-decade or so.

Crude oil first turned higher in 1999; gold didn't get started until 2001. Oil's major leg up began in 2002 and peaked in mid-2006; gold's uptrend remains rock-solid today.

More importantly for active gold traders, short-term fluctuations in the gold price have next-to-nothing to do with movements in oil.

From 1983 to 2006, the average correlation between their weekly price changes was a mere 0.10.

Yes, the connection improves if you look at the three years ending Dec. '06, rising to 0.33.

But the correlation would be nearer to 1.00 if gold really was "all about oil".

"As inflation concerns rise globally, gold is well- positioned to move higher," reckons another strategist at Scotia Capital in Toronto.

But again, inflation alone has little impact on the price of gold.

The real driver is the gap between inflation and interest rates – which is why last night's statement from the Federal Reserve could prove very supportive for gold over the next few months.

The Fed dropped its reference to "additional firming" even though US inflation shows no signs of falling back.

And the lower that real interest rates go, the more attractive gold becomes to investors everywhere.

To learn more, and read a full report on gold's long-term dynamics now, simply click here...

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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