Gold News

Gold Bounces as Euro Rallies, Oil Falls; Long-Term Grain & Energy Crunch Set to Worsen

The price of Gold turned higher from a new two-week low in London on Friday, reaching $882 per ounce as the Euro recovered to $1.550 but crude oil slipped beneath $126 per barrel.

This week's steep 6% drop in world Gold Prices was "affected by the stronger Dollar, but more by [falling] oil," believes Wolfgang Wrzesniok-Rossbach of Heraeus, the German refining group.

He pegs the trading range between the mid-May low of $860 and the previous support level of $890 per ounce.

"The recent rally [in gold] was fuelled by oil and the Euro," agrees the latest Gold Market note from Mitsui, the precious metals dealer. "As soon as they turned, gold fell quickly. Is this a bearish sign?

"Each attempt by the market to recover since the all-time high has seen a lower high and then a lower low, so it will certainly leave some of the fresh longs in the market feeling nervous."

On a technical analysis, Mitsui adds, "the 200-day moving average coincides with that previous low at $845 per ounce [also the previous record high of Jan. 1980]. But the question is whether there will be enough physical demand at this level to support the market.

"Traditionally the summer months see a quieter physical market, so it could be an interesting period for the Gold Price."

Elsewhere in the commodity markets on Friday, tin headed for its steepest weekly drop in nine months according to Bloomberg's data. Corn futures fell for the fourth day running, nearing their first monthly drop since August after gaining 55% since the end of December.

Wheat prices, which more than doubled in 2007, were little changed.

"Grain supplies are anticipated to remain tight in the coming years," says the overnight report from the Chicago Board of Trade (CBOT), citing the United Nation's latest 10-year outlook.

"Demand growth for grains during the period to 2017 will be driven primarily by the expansion of the biofuels and livestock industries, said the Food & Agricultural Organization. By then, around 40% of US corn could be used in ethanol production."

Looking ahead in the oil markets, however, new research from the Federal Reserve Bank of Dallas notes that excess production capacity has shrunk dramatically while new demand from the world's fastest-growing large economies continues to soar.

"A broad cross section of nearly 180 countries shows that doubling per capita income more than doubles per capita oil consumption," the Dallas Fed reports. And adjusted for inflation, India's GDP per head almost doubled between 1990 and 2005.

China's per capita earnings rose almost four times over. Together, these "two giants" have a combined population of 2.4 billion people.

On the supply side of the crude market, meantime, the Opec oil cartel – which controls more than one-third of daily global production – has seen spare capacity shrink to 1-2 million barrels per day in the last three years, down from 5.6 million in 2002.

In the broader financial markets on Friday both stock market and government bond prices rose, with the FTSE100 here in London gaining 0.2% despite the GfK survey of UK consumer confidence giving its worst reading since Margaret Thatcher was forced from office as prime minister during the house-price slump of 1990.

Japanese construction orders and industrial production both fell hard in April, the Ministry of Economy, Trade & Industry said overnight. But the declines were not as great as Tokyo analysts had feared, and the Nikkei equity index ended the day 1.5% higher at a new four-month high, led once again by export stocks as the Yen held near a three-month low of ¥105.40 per Dollar.

The British Pound – now nailed to the US Dollar in the currency markets after four years tracking the Euro – slipped back from a one-month high of ¥208.50.

The Gold Price in Sterling recovered from a three-week low of £441.25 per ounce.

Today brings consumer-price inflation and personal spending data from the United States, where defaults on privately-insured home loans rose 71% last month from April '07 according to the mortgage industry's latest report.

After private banks worldwide raised $213 billion to cover losses on US subprime mortgages since last summer, analysts at UBS now forecast another $120bn may be needed as the US economy slides into recession.

"And they should know!" as the hedge-fund blog Fintag notes.

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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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