Gold News

Spot gold prices – volatility rises as US confidence, stocks and housing decline

Volatility in the spot gold market rose but remained low on Tuesday after Wall Street opened down and much-awaited data showed a drop in US consumer confidence.

The Conference Board's index, based on a survey of 5,000 households, slipped to a reading of 107.2 this month, down from 111.2 in Feb.

The Expectations Index declined to 86.9 from 93.8.

"Apprehension about the short-term future has suddenly cast a cloud over consumers' confidence," said Lynn Franco, director of the Conference Board's Consumer Research Center.

The Dollar was little changed on the news, but US equities stayed weak, matching the quiet decline already seen European stocks.

At the PM Fix in London, one ounce of gold was put at $664, down $1.15 from the AM Fix four hours earlier.

Spot gold prices also dipped against Sterling, Euros and Yen, but stayed within a tight range just shy of their intra-day highs.

"Gold is underpinned by higher oil and a weaker Dollar," reckons Robin Bhar, a metals analyst at giant investment bank UBS.

"It needs a trigger...The standoff between the UK and Iran with its nuclear ambitions could be it."

The trigger of Tehran seizing 15 British marines, however, has failed to push gold significantly so far higher this week.

Gold rarely acts as the 'safe haven' many pundits expect, in fact. (You can get the facts here...)

Now held at an Iranian Revolutionary Guards Corps base in Tehran, according to the BBC, "these people have to be released," said prime minister Tony Blair on breakfast TV this morning.

Unless the Iranian government releases the service staff, he said, "this will move into a different phase."

Crude oil prices also failed to move higher on Mr. Blair's brave words, however.

By 15:45 in London today, Brent crude was trading 0.4% lower for the day at $64.16 per barrel.

Back on Wall Street, the slow-motion collapse of America's housing bubble continue to weigh on the US stock market. (What might it mean for gold? Click here for more...)

Lennar Corp., the largest US homebuilder by revenue, said ahead of the opening bell that earnings sank 73% in the last quarter.

"Given the state of the market, we do not expect to achieve our previously stated 2007 profit goal," said Stuart Miller, CEO of the Miami-based company.

"We are not comfortable providing a new earnings goal at this time."

Only last week, Lennar ran full-page advertisements in the Chicago Tribune offering a free 42-inch plasma TV to buyers of "quick-delivery homes" – new properties close to completion.

The company also offered free upgrades on carpentry, carpeting, kitchens and lighting worth up to $60,000.

No wonder, then, that today's earnings report showed gross profit margins falling to 15.6% from 24.9% a year ago.

The value of Lennar's unsold homes dropped 51% to $3.45 billion.

The latest US home-price index, meantime, today said that home prices in twenty US metropolitan areas fell in Jan. – the first drop in six years of data.

"[This gives] a good indicator of the dire state of the US residential real estate market," says Robert Shiller, chief economist at MacroMarkets and a professor at Yale University.

Home prices fell on average 0.2% from a month earlier.

In Tokyo, however, the opposite problem is now starting to worry policy markers.

Bank of Japan head Toshihiko Fukui said today he's watching land prices after a report said parts of Tokyo appreciated by 46% in 2006.

"We aren't yet in a situation in which land-price gains warrant concern of excessiveness, but we'd like to keep a close watch on them," Fukui told parliament.

"Rising land prices won't automatically prompt a rate increase."

Residential land prices rose for the first time since 1991 according to the survey, gaining 2.8% from 2005.

The last bubble in Japanese land prices – matched by huge speculation in Tokyo stocks – ended in an economic depression.

The government's response, slashing interest rates to zero, then unleashed a flood of cheap money across the world that continues to buoy asset prices everywhere today.

What happens if Tokyo now raises Yen interest rates? Click here to read more...

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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