Gold News

Spot gold prices recover Friday's losses on weak US housing data

Gold recovered its losses from Friday at the US open today, hitting $664 per ounce on news that sales of new houses in America fell to their lowest level in 7 years last month.

Sales of new homes dropped 3.9% in Feb. according to the Commerce Department, "dimming prospects for a quick revival in housing," as Bloomberg puts it.

(How dim might the US mortgage market's prospects grow from here? Click here to read more now...)

The news reversed Friday's data showing how sales of existing homes rose by 3.9% in Feb., causing a spike in the Dollar that knocked gold 1% lower.

Today's data put the Dollar back down to $1.335 versus the Euro, almost one cent to the bad inside two hours.

The Dollar also dropped 0.7% of its value against gold.

Versus the other major currencies, however, gold only crept higher to its mid-afternoon peak in London. Spot gold prices hit £337.60 for British investors.

And the metal swiftly dropped 0.5% from its peak at €499.50 against the Euro as the Dollar fell on the US housing data.

Professional traders and pundits alike, meantime, continue to cite Middle East tensions for today's rising gold price.

"The situation in the Gulf is quite tense, which is bullish for gold," says Bernard Sin, chief trader at MKS Finance, the gold refiners in Geneva.

Iran seized 15 members of the Royal Navy at the weekend. British prime minister Tony Blair says the situation is "very serious".

Also at the weekend, the United Nations voted to begin sanctions against Tehran for failing to halt its uranium enrichment program.

"The market is obviously concerned about what is happening with Iran," says one commodities trader in Chicago.

Iran has the second-biggest oil reserves in the world. It is the second-biggest producer in Opec.

One barrel in every four of the world's crude oil must travel through the Straits of Hormuz, overlooked by Iran on one side and Oman on the other.

Brent crude due for May delivery rose nearly 2% today to $64.30 a barrel at London's ICE futures exchange, their highest level since Dec.

(But just how well does gold respond to rising political and investment risks? For the full story, click here now...)

On the supply front, central bank sales picked up sharply last week according to the latest report from Heraeus, the giant German refining company.

"The European Central Bank (ECB) reported surprisingly strong sales for last week, when more than 16 tonnes of gold with a value of 256 million euros were sold by two unnamed European central banks," it reports.

The ECB said the sale was in line with the 2004 Central Bank Gold Agreement.

"One of the regular sellers from the European central bank community in the last years has been the Dutch central bank," says Wolfgang Wrzesniok-Rossbach for Heraeus. "It said in a statement on Tuesday that it had sold 54 tonnes of gold in 2006, leaving it with reserves of 640 tonnes at the end of last year.

"Of the 165 tonnes allocated to the Dutch when the new CBGA was signed...a total of 136.50 tonnes have been sold in the last two years.

"That leaves the Beneluxcountry with just 28.5 tonnes which can be sold until the current agreement expires in September 2009."

(What might drive central banks to stop selling and start hoarding gold instead – other than reaching the limit of their agreed gold sales early? Click here for a full report...)

Short-term selling pressure also comes from the gold futures market in Tokyo and New York today.

Open interest at the Tocom has dropped 17% since last month, when liquidity in Japan's gold futures contracts hit a six-month high. The end of Japan's financial year on Saturday may deter new investment, according to one trader interviewed by Reuters.

And in New York, open interest at the Comex fell 8.7% in the week to last Tuesday.

But America's big commercial traders reduced their net short positions by 1%, even as the price of gold rose.

Historically, that should be taken "as a positive sign short term" says

For a longer-term reading of the technical picture today, 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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