Gold Prices gave back an overnight rally in London on Thursday, flirting with a two-week low beneath $890 per ounce as crude oil fell 0.6%, the US Dollar rose, and world stock markets continued to gain.
"There is not much speculative participation" in the Gold Market right now, according to one London fund manager.
"I feel the sell off is not over," a Swiss trader added to Bloomberg.
As Gold fell back, European stock markets erased their losses for the week so far, pushing the FTSE100 here in London another 0.5% higher in morning trade.
The Nikkei share index in Tokyo closed the day with its best performance in eight weeks, jumping 3% as export stocks rose on a sharp fall in the Japanese Yen.
By midday in London, the US Dollar had broken above ¥105 and pushed the European single currency back to a 7-session low beneath $1.5550.
"A firmer Dollar and weaker oil are two negatives for Gold," reckons Mark Pervan, a commodities analyst at ANZ, speaking to The Age in Australia.
"If oil falls 3-4% this week, gold could fall 4-5%."
Trading below $890 per ounce, the Gold Price stood 3.8% below last Friday's close as the US open crew near today. The price of crude oil has dropped 3.7% per barrel.
Supporting long-term oil bulls, however, "Mexico [just] reported a 13% year-on-year decline in daily oil production," notes Manqoba Madinane for Standard Bank in Johannesburg, "whilst Indonesia announced that it planned to pull out of the Opec oil cartel as it has become a net importer of oil – indicating growing crude oil supply-side risks."
Higher energy costs, coupled with an unexpected surge in credit and money supplies, are set to push European inflation rates back to a 16-year high according to consensus forecasts of Friday's CPI data for April.
Today the European Central Bank (ECB) said annual growth in the broad M3 money supply hit 10.6% last month across the 15-nation Eurozone.
German government bond prices dropped hard on the news – pushing two-year yields up to a nine-month high – while UK government gilts also fell despite Nationwide, the country's largest mortgage lender, reporting the sharpest monthly drop in national house prices on record at 2.5%.
"If inflationary developments and, more important, inflation expectations continue to worsen, I would expect a change of course in monetary policy to occur sooner rather than later, even in the face of an anemic economy," said Richard Fisher, president of the Dallas Federal Reserve Bank on Wednesday.
But Fisher remains one of only two Fed committee members to vote against this year's sharp cuts in the cost of Dollars. Only yesterday, Ben Bernanke – head of the Federal Reserve – praised former Fed member Frederic Mishkin for his "invaluable" contribution to recent policy as the Columbia professor returned to academia.
At the 16 policy meetings he attended as a Fed governor, Mishkin never once voted to raise US interest rates.
"The sharp recent rises in global commodities prices, particularly in the energy and agricultural sectors, is undoubtedly causing hardship for many Americans, and is indeed threatening the health of many millions in developing countries," said Dr. Benn Steil, a senior fellow at the Council on Foreign Relations, in testimony before a Senate Committee on Surging Oil and Food Prices last week.
"[But] whereas the prices of oil and wheat measured in US Dollars have soared over the course of this decade, they have, on the other hand, been remarkably stable when measured in terms of Gold – gold having been the foundation of the world’s monetary system until 1971.
"It is therefore reasonable to conclude not that we are a experiencing a commodities bubble, but rather the end of what might usefully be termed a 'currency bubble'."
Looking at the supply-and-demand dynamics of the global bullion market, meantime, Gold Buying by the world's major gold mining companies could equate to some 10 million ounces this year, according to the latest analysis from SocGen's Hedge Book, researched by the GFMS consultancy.
After building up a short position worth 3,421 tonnes of production – as yet unmined – during the 20-year bear market ended in 2001, the world's gold mining companies began to "de-hedge" and buy back these sales when the Gold Price began rising at the start of this decade.
Once again "the rate of producer de-hedging surpassed expectations" during the first three months of this year, says the SocGen report. Meaning that gold miners took steep losses on cutting their short position as the Gold Price broke new all-time highs above $1,000 an ounce.
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