Gold Market "Over-Sold" as Stock-Market Bounce Fails, Bond Yields Sink, Economic Gloom Builds
Gold Prices rose early Friday in Asia before slipping 0.5% from a two-day high to head for their second weekly loss running in London.
Crude oil ticked 75¢ higher to break above $126 per barrel. Stock markets fell sharply worldwide, losing 2% in Tokyo and dropping to a six-session low in Frankfurt, Germany.
"Despite a decent range, Gold Trading in Asia was pretty lethargic," reports Mitsui in Hong Kong. "Customer interest was low and traders were laying low."
"There is a little bit of a bounce and the market looks bullish for now," believes Commtrendz in Mumbai.
"I think the market looks a little oversold, short-term. There could have been bargain buying ahead of the weekend, but it's not too strong," says Mark Pervan at ANZ in Melbourne, Australia.
Trading almost 2% above Thursday's two-week low of $917 per ounce, Gold remained more than 10% below its all-time top of mid-March – hit when Bear Stearns was sold to J.P.Morgan in a fire-sale deal.
Rumors in London today claimed J.P.Morgan is now eyeing Halifax-Bank of Scotland. With a market cap' of £10.9 billion ($20bn), the UK's largest mortgage lender has lost seven-tenths of its value since July '07.
On Monday HBOS placed only 8% of a planned £4 billion rights issue with shareholders.
Thursday saw J.P.Morgan drop almost 7% of its value as US financial stocks suffered their worst one-day fall since 2000 – down 6.7% on average and capping a 30% rally over the preceding five sessions.
Investors fled into fixed-income government bonds, pushing the annual yield offered to new buyers of two-year US Treasuries fully 22 basis points lower to 2.61% – the average yield of the last three months.
Consumer price inflation in the United States was last pegged above 5.0% per year, leaving bond investors and cash savers alike deep under-water.
"Despite booking massive losses, albeit much lower than the average losses in other major precious metals this week, it cannot be ruled out that Gold will not loose some more value," says Wolfgang Wrzesniok-Rossbach at Heraeus, the German refining group based in Hanau.
"[But] the chart currently shows however good support at the $915-mark. It is very possible that for the moment the yellow metal can hold above this level. On the other side, subject of course to political and economical upheavals, the metal could run out of steam for the time being at $965 an ounce."
Today in Zurich, the Swiss central bank admitted a loss of CHF3.4 billion ($3.2bn) for the first half of 2008, blaming exchange-rate investments in Dollars, Sterling, Euros and Yen that turned sour.
The Swiss National Bank (SNB) also said it sold 68 tonnes of Gold in the open market between Jan. and end-June, just over one-fourth of the 250-tonne sales announced last summer.
The Gold Price in Swiss Francs has risen by 21% since then.
On the currency markets today, the Dollar gave back one-half of the gains it made this week's against the major European currencies, pushing the single currency Euro back up to $1.5750.
The British Pound also jumped 0.7%, overcoming both weak economic-growth data and news that four-in-ten UK house sales in some regions are collapsing as buyers back out or fail to arrange mortgage finance.
"An outright recession remains our central scenario," says Paul Dales, UK analyst at Capital Economics in London.
Today in Irvine, California, the RealtyTrac data firm said US home foreclosure filings rose 14% between April and June, more than doubling from the year earlier period to equal one foreclosure for every 171 households in total.
New mortgage lending in the 15-nation Eurozone sank to a record low in June, the European Central Bank (ECB) said today. Inflation in German import prices, in contrast, rose to an eight-year high of almost 9% annually.
The latest Reuters survey of 250 economists worldwide found them universally gloomy on the G8 industrialized nations – "a bit like choosing between deck chairs on the Titanic," according to one analyst.
"The Gold Market chart of 1978 closely resembles the chart of 2008," writes Ron Rosen of the eponymous Market Timing Letter in New York, quoted by Richard Russell of The Dow Theory Letter.
"The patterns, once a breakout above a previous multi-year high occurred, are nearly identical if you compare the first seven months after the breakout to a new all-time high.
"Starting in 1978 gold rose from the breakout price of $192 to the ultimate high of $873. That was an increase of 450%. If the current Gold breakout from the $850 high increases by 450% the ultimate high will be $3,825.
"However, we are living in more dangerous financial times than existed in the 1978-to-1980 period."
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