Gold Prices Dump Again -- Down 6% in 36 Hours -- as Oil Falls, Dollar Bounces, Bear-Market Rally in Stocks Continues
The price of physical Gold dumped another $25 per ounce Wednesday in London, falling almost 6% from yesterday's four-session high.
World stock markets rose strongly, meantime, with Europe's 300 largest shares gaining 1.6% on average and just climbing out of the 20% bear-market loss witnessed between Nov. and June.
Crude oil fell towards $126 per barrel. The US Dollar pushed the Euro down to a two-week low beneath $1.5720.
"I am not sure whether the adjustment overnight is going to have a big impact in terms of attracting what you might call bargain buying," said David Moore at Commonwealth Bank in Sydney to the Economic Times of India earlier today.
"You've got to remember it was only a couple of weeks ago that Gold was actually lower than current levels."
"Plummeting crude oil prices are the primary risk factor to investment fund flows into precious metals," says Manqoba Madinane in Johannesburg for Standard Bank.
With Tropical Storm Dolly now by-passing key oil installations in the Gulf of Mexico, today saw the Energy Information Administration report another surprise rise in US crude stockpiles, up 2.8 million barrels last week.
That helped spur a fresh 4% slide in West Texas oil futures, which fell below $125 per barrel – a seven-week low.
"Given the vast net long gold positions built up in the last month," says Mitsui – the precious metals here in London – "investors spooked by the ailing oil market and the general malaise in the commodity market have room to liquidate in significant volumes.
"We could see the Gold Market retrace all the way back to a sub-$900 price.
"The main exchange-traded gold fund, SPDR, fell by close to half million ounces in Tuesday's trade – the largest bout of selling since the frenzied liquidation that took place in April."
Touching a two-week low today at $918 per ounce, the Gold Price put in its worst 24-hour performance since falling from the all-time peak of $1,032 per ounce, hit back on March 17th – the day Bear Stearns was rescued by a fire-sale to J.P.Morgan, aided by a $29 billion loan from the Federal Reserve.
Government bond prices also continued to fall today after US Fed member Charles Plosser warned in a speech on Tuesday that Dollar interest rates need to rise "sooner rather than later."
The yield offered by 10-year US Treasuries today jumped to a one-month high of 4.15%. It bottomed at 3.34% in mid-March.
"Inflation is already too high and inconsistent with our goal of – and responsibility to ensure – price stability," Plosser said in Philadelphia yesterday.
After the Federal Reserve slashed US interest rates from 5.25% down to 2.0% in response to the global banking crisis – cutting the real returns paid to cash to minus 3.0% after consumer-price inflation – "we will need to reverse course," he went on.
"The exact timing depends on how the economy evolves."
US mortgage applications fell 6.2% last week, according to new data released this morning.
Thursday brings existing home-sales data, with new house sales for June due on Friday together with Durable Goods orders.
Late Tuesday Washington Mutual – the largest savings & loan institution in the United States – reported a $3 billion loss for April to June, its biggest-ever quarterly loss.
Wamu also increased its loss reserves to more than $8bn in anticipation of further mortgage defaults, and promised $1bn in cost cuts by end-2009.
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