Gold News

Gold sinks on surprise US housing data

Spot gold prices dropped $6 at the Wall Street open on Friday, sinking to $656.50 – a three-day low.

The move came as US stocks rose and bonds sold off following news that the US housing market picked up sharply in Feb.

Sales of previously owned homes in the US rose 3.9% according to the National Association of Realtors in Washington.

"Most of the housing adjustment is completed," reckons one Californian economist interviewed by Bloomberg.

His clients might want to hold off buying fresh mortgage-backed bonds just yet, however.

"House prices to recover next year," announced the London Times in 1989...just before the UK real estate market lost one-third of its value over the next 7 years.

(Click here to read the full story in 'Zombies on Wall Street and Main' now...)

Back in the gold market, "traders are using the home sales numbers as a good excuse to sell some gold on Dollar strength," says Matt Zeman, a trader at LaSalle Futures in Chicago.

Yet gold also fell fast against all major currencies, dropping 0.8% against both Sterling and Euros to £335 and €494 respectively as the PM Fix drew near in London.

All told, the drop more than gave back the leap made on Wednesday's decision by the Federal Reserve to keep Dollar interest rates on hold.

The market's sudden confidence in US housing today – and the likelihood of further rises ahead in US rates – also comes as April contracts in the gold futures market near expiry.

As reported by GoldNews yesterday, open interest according to the CFTC had suggested that speculative gold traders were beginning to roll over their "longs" to the June contract.

Friday's sudden decline might cause some funds to rethink their "paper gold" trades, however.

What of the longer-term? "Our view is still very, very clear," said Paul Walker, executive director of the highly respected GFMS consultancy earlier this week.

"The building blocks are there for higher prices...and we think we’ll see gold prices reach the $700 level."

Talking to Moneyweb's Power Hour on South Africa radio, Walker added:

"We would probably have expected the price to be testing the $700 level around about now – if not a little bit earlier.

"Over the last few years, we have seen the price running up at this time of the year."

April will mark the 12-month anniversary of gold's dramatic spike, leading to a 26-year peak above $720 per ounce.

That move sucked a lot of "hot money" into the gold market. It also coincided with heavy de-hedging by the biggest gold mining companies – as well as strong demand from Indian buyers during the Akshaya Thrithiya festival.

(For 2007's Indian demand and de-hedging outlook, click here now...)

News from China also suggests there could be steady buying outside the noise and fury of the spot and futures markets in coming months.

Zhaojin Mining Industry, China's second-largest owner of gold in the ground, said today that its 2006 profits more than doubled.

The company increased its sales by 34% from 2005.

"A positive outlook on gold prices will sustain the profit growth of the miners generally," notes Chris Ding of China International Capital, Beijing's biggest investment bank.

But rising output from domestic gold miners would also allow the Chinese government to buy gold direct from local producers – side-stepping the London and US markets.

One major gold-mining nation used exactly this tactic at the start of this year.

For the full story, 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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