Gold News

Gold hits 18-week low at AM Fix but rises on US economic data

Spot gold prices held steady during the first half of London trade Friday, rising to $653 per ounce – the overnight high – on mixed economic news for the Dollar.

The Morning Fix had earlier come in at $650.60 per ounce, the lowest weekly close since Feb 2nd.

But physical gold bullion rose as Wall Street opened, just after the US Dept. of Labor reported consumer price inflation in the US rose 2.7% in the year to May.

Although the so-called "core" inflation index watched by the Federal Reserve came in at just 0.1% month-on-month – half the rate expected – analysts had been looking for a slower rate of increase in the headline cost of living.

Also mixed for the Dollar, the US trade deficit grew during the first quarter to $195 billion. Wall Street had feared a wider gap.

The NY Empire State Manufacturing Index was better than expected, but not enough to prevent a spike lower in the value of the Dollar on the currency markets.

Earlier in Tokyo the benchmark April '08 gold futures contract rose 0.4% against the Yen, but it held at the equivalent of $659 per ounce in Dollar terms.

The weakening Yen had hit a fresh four-and-a-half year low of ¥123.04 to the Dollar, encouraging Tokyo funds to push Japanese export stocks higher, helping the Nikkei stock index close at a one-week high.

The big news for investors wanting to buy gold now, meantime, remains yesterday's announcement from the Swiss National Bank that it will sell 250 tonnes of gold – one fifth of its remaining reserves – over the next two years.

Directorate member Thomas Jordan told reporters that, thanks to the rising gold price, gold's share in Switzerland's currency reserves had risen from 33% to 42% since mid-2005.

The sale will rebalance Switzerland's portfolio, said Jordan – a similarly practical reasoning to that given when the SNB sold 1,300 tonnes of gold between 1999 and 2005.

The planned sale, reckons John Bridges at J.P.Morgan, will equal around 6% of annual gold demand between now and 2009.

The sale may put "downward pressure" on gold and gold stocks, says Bridges. Put the announcement yesterday failed to dent Thursday's 0.4% rally – and heavy central bank gold sales only tend to harm the gold price when it's already in a confirmed downtrend.

Even so, Matt Turner – an analyst at Virtual Metals, publishers of the highly respected Yellow Book gold report – thinks it significant that the SNB bank cited re-balancing to 30% of reserves as the reason for selling a portion of its gold.

"Greece has 80% of its reserves by value in gold," Turner tells Resource Investors, "Portugal 79%, Italy 66%, Germany 63%, Netherlands 56% and France 56%. If these banks were to reduce their reserves to 30%, Germany would have to sell 1,802; Italy 1,341; France 1,273; Switzerland 394; Netherlands 311 and Portugal 235 tonnes."

To learn more about the history of central banks selling gold – and what it might mean for the price – click here and read on...

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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