Gold News

Gold Bars Near Record High vs Crude Oil as Stockmarkets Sink, US Interest Rates Drop

GOLD BARS priced for London settlement – the wholesale market's standard terms – slipped back from new 3-month highs Tuesday morning, trading down from $1130 per ounce as stock markets fell yet again worldwide with crude oil and commodity prices.
 
Only Shanghai bucked the drop in global equities after the People's Bank injected $15 billion-worth of short-term loans into China's money markets ahead of the usual liquidity squeeze at Chinese New Year, starting next weekend.
 
Brent crude oil meantime sank 4.3%, and major government bonds rose, pushing the yield offered by 10-year US Treasuries down to 1.93% – the lowest medium-term interest rate since April last year.
 
Dropping for the 14th session of 22 so far in 2016, European equities have now lost 10% since New Year.
 
Gold priced in Euros has so far risen 6.1%, while UK investors wanting to buy gold bars have seen the price rise 8.5%, peaking last week at a 9-month high of £792 per ounce but slipping Tuesday below £780.
 
That marked only the fourth trading day of 2016 to date that gold priced in Sterling has fallen as the FTSE 100 index of leading shares also dropped.
 
The UK's top 100 listed companies have so far lost 5% of their value in 2016, with giant oil producer BP (LON:BP) losing 8% on Tuesday morning alone after reporting its worst-ever annual loss on the plunge in world crude prices.
 
"We have been bearish gold since 2013 on a confluence of factors," said a note Monday from metals analyst Michael Widmer at US investment and retail banking giant Bank of America-Merrill Lynch, pointing to the rising US Dollar, falling crude oil prices, low stockmarket volatility and the rise in real interest rates, net of inflation.
 
Chart of gold bullion bars priced in US Dollars vs real 10-year Treasury yields adjusted for CPI inflation
 
"Moving into 2016," Widmer says, we thought many of these trends...may continue to provide headwinds to the yellow metal. Yet concerns over the health of China's economy and activity in the US have pushed prices higher."
 
Gold's rally may dip on a pause in the stockmarket's drop, BAML concludes, but "we remain steadfast in our expectation that this will be a transitional year, with gold ultimately breaking out of the bear market."
 
Crude oil, in contrast, is likely to see "another large decline in prices" even if the Opec cartel of producer nations does now agree to cut output, says a note from US investment bank Goldman Sachs.
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"It may already be too late for Opec producers [to boost prices] given the likely time necessary to enact such cuts, the continued large builds in US and global inventories, and the fast pace at which US Gulf Coast spare storage capacity is filling."
 
Priced against crude oil, a 1-ounce gold bar was today worth almost 35 barrels in London trading – a near-record price just shy of the 1973 Oil Crisis high.

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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