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Gold Slips from "Instant Contagion" High of $1210 as Germany Backs Greek Bail-Out, UK Faces Hung Parliament

Gold eased back from yesterday's huge jump early Friday, slipping 1.3% against the Dollar after reaching a near all-time record at $1210 amid Thursday's US stock-market crash.

The Dow Jones Industrial Average dropped a record 998.5 points at one stage, as $1 trillion was wiped off the value of US equities.

European stocks lost a further 1.3% by lunchtime in London on Friday, while crude oil bounced back above $77 per barrel, and the Euro currency gave back one-third of an early 3¢ bounce.

"The vast interlocking web of strategies that make up day-to-day financial markets [means] contagion is not only guaranteed but instantaneous," says a comment at the FT's Alpha blog today.

Analysts today variously blame the slump on "algorithmic" computer trading, a "fat finger" mis-typing the sale price of Proctor & Gamble's stock, the US stock markets lack of "circuit breakers" to shut trading if prices move too far, too fast, as well as a spike in the Japanese Yen.

"Dazzled and puzzled by the volatilities overnight," said one Hong Kong dealer this morning, Asian gold traders today "had no convictions."

The Dollar Gold Price "will attempt to consolidate in $1195-1210," he adds, "after which it will resume the uptrend."

The Euro currency today rallied from Thursday's new 14-month low near $1.25 as Berlin's Bundestag approved Germany's €22.4 billion share of Greece's €110bn bail-out.

Chancellor Angela Merkel's bill was backed by 390 votes to 72, with 139 abstentions.

Fresh rioting greeted yesterday's parliamentary vote in Athens to accept the "austerity" terms of the joint European-IMF rescue.

"The market did not take at all kindly to ECB president Jean-Claude Trichet's comments  yesterday," notes French bank Natixis today, "refusing to copy the Treasury-bond buyback measure taken by the Federal Reserve and the Bank of England, and instead [demanding] fresh austerity plans."

Friday's sharp rally in the Euro knocked the Gold Price for German and Greek investors alike down 2.3% from yesterday's fresh record of €30,938 per kilo.

Gold began the week trading at €28,500.

Pounds Sterling, British gilts and London's FTSE stock index meantime fell hard as the UK's General Election ended in a "hung parliament", with no single party in overall control.

The Gold Price in Sterling recorded its fastest one-day jump since Feb. 2009, adding 5.4% from Thursday morning to reach £829 an ounce.

Ten-year UK gilt yields jump 16 basis-points as prices sank, undoing the last five months' action to trade just shy of 4.0%.

Rumor said today that the Conservative and LibDem parties were considering a coalition to replace the current Labour administration.

"We had thought gold would find strong resistance above $1190," says Walter de Wet at Standard Bank, "but markets were in a panic after equities' plunge."

Versus the Dollar, "$1200 now provides support to gold," reckons de Wet, "as risk aversion remains entrenched in financial markets.

"However, we remain mindful that scrap [gold] continues to come to the market."

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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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