Gold News

Violent Price Swings Leave Demand to Buy Gold "Lacking Momentum" as Commodity & Stock Market Rally Fades

Prices to Buy Gold remained volatile in Asian and London trade on Wednesday, holding within $20 per ounce of last week's finish – some 7% above Monday's two-month low – as this week's strong rally in global stock markets faded and industrial commodities also eased back.

Japanese and US government bonds were little changed as the Yen and Dollar continued to slip from last week's sudden jump, but German Bunds fell in price – nudging interest rates higher – as new inflation data showed stronger than expected consumer-price rises in five German states.

UK government bonds rose, pushing 10-year gilt yields down towards 2.5%.

UK consumer-price inflation was pegged in August at 4.5% per year.

"We view the very strong rally across both the equity and commodity markets as more of a relief rally, unlikely to be sustained," says the latest note from Standard Bank's commodity team, pointing to the difficulties facing the Eurozone's plans to expand its 'stabilization' bail-out fund.

"However, momentum [in demand to Buy Gold ] is lacking as investors adopt a seemingly cautious attitude to entering the gold market after last week's abrupt price fall."

US crude oil contracts slipped back from $85 per barrel overnight, and base metal prices also fell, leaving copper almost 14% down week-on-week.

Like gold, the Silver Price held near last week's finish, but traded in a wide range around $32 per ounce.

Since the $50 peak of Jan. 1980, daily volatility in the Silver Price has been greater in only two periods on a rolling 1-month basis – in spring 1987 and then in May this year.

Volatility in gold, on the other hand, was sharper than today in March 2009, Sept-Dec. 2008 and May-June 2006, as well as in spring 1983, autumn 1982, and early 1981.

"I doubt if [the Gold Price ] will go to $2000 an ounce in 2011," says Jim Rogers, investment author, founder in the 1970s of the highly successful Quantum Fund with George Soros, and now chairman of Rogers Holdings.

"Gold is more likely to have a correction which will last for several weeks, several months," Rogers tells the Economic Times of India in an interview.

"If it goes down some more, I would buy more gold. If silver continues to go down, I will buy more silver too. Do not sell...unless you are a short-term trader."

Greek government bonds meantime ticked higher on Wednesday after the government in Athens – now suffering its fourth transport strike in as many days – won approval last night for a new property tax to be collected through electricity bills and aimed at raising €1.8 billion, some 1.1% of GDP.

"I have heard so far that Greece is ready to meet the conditions" of its next €8bn rescue payment from the International Monetary Fund and its European partners, said German chancellor Merkel after the vote.

"We want a strong Greece in the Euro area and Germany is ready to offer all kinds of help that is needed."

German lawmakers will vote Thursday on allowing changes to the €440 billion Eurozone stabilization fund – changes now ratified by 9 of the 17 member states. The European Commission meanwhile formally proposed a new financial transaction tax today, aimed at raising some €57bn by charging 0.1% on all institution-to-institution trades and due to start in 2014.

The tax will "ensure that the financial sector makes a fair contribution at a time of fiscal consolidation in the member states," according to the EC.

Here in London, shares in Man Group fell nearly 20% on Wednesday morning after the hedge fund manager's latest earnings report showed investors withdrawing $3 billion over the last 3 months from the GLG funds which it acquired last year.

This is already the fourth week running that Germany's Dax stock-market index has moved by more than 6%.

"Little [gold] buying interest out of China ahead of the week-long holidays," says one Hong Kong precious metals dealer in a note, but "Selling was less intensive and the price moves less vicious," says another.

"The decline in the past two weeks has fully unwound a lot of the bullish enthusiasm [to Buy Gold] grounded in the market's anticipation of QE3 or other inflationary Fed actions," says MF Global's Tom Pawlicki.

"We saw some ETF liquidation, and liquidation of speculative positions from the West," agrees Neil Gregson at J.P.Morgan Asset Management.

"When things start to go into panic mode, you could sort of say it was this 'dash for cash' that happened post-Lehman's."

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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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