Gold News

Gold drops $1 by London close ahead of Bernanke speech and US inflation data

Spot Gold Prices barely moved in London trade on Monday, slipping $1 lower to end the day at $666.50 per ounce.

"Overall trading is not that great, and I don't see buying interest from Indonesia," said a bullion dealer in Singapore earlier to Reuters. "Demand from Thailand is still OK because of the Thai baht."

"Some people are Buying Gold because of a slight increase in oil prices," another dealer told the newswire from Hong Kong, as flat trading set the tone for the session, "but the market has been stuck in a range in the last couple of days. I guess things will depend on the Dollar; people will be waiting for Bernanke's speech."

Ben Bernanke, chairman of the US Federal Reserve, will give a two-day testimony on the US economy to Congress starting Wednesday. Notes from the most recent Fed meeting – when it chose to keep Dollar rates at 5.25% for the 13th month running – will be released Thursday.

Gold and currency traders will also be studying today's Eurozone
inflation numbers, recorded as expected at 1.9% year on year. Consumer
price inflation in the UK for June is due tomorrow (Tues), followed by
producer price inflation in the US at 13:30 BST. The all-important US
consumer price inflation will be released on Weds.

(Why do inflation and interest rates influence gold prices so much? Get a detailed report – for free – click here now...)

With Tokyo closed for a national holiday today, Gold Trading had been flat all through the Asian session before opening London today nearly 1% higher from last week's start. The Euro was little changed against the Dollar after last week's 1.5% leap to fresh record highs.

That capped the Euro Price of Gold below €483.60 per ounce. For British investors wanting to Buy Gold Today the price dipped below £327.60 by the London close.

"In the coming week gold will continue to remain a puppet to non-fundamental factors," reckons Wolfgang Wrzesniok-Rossbach for Heraeus, the German refining giant, "making a price-prognosis relatively difficult.

"But from a purely fundamental perspective, given the presently depressed physical demand, it seems to be a little overvalued."

Yesterday's festival of Pushya Nakshatra in north-west India "turned out to be less lucrative for jewelry shopowners than last year," reports Ahmedabad NewsOnline. Sales were down by nearly 75% from 2006, but "Pushya Nakshatra coincided with the festival of Diwali last year," notes Shantibhai Patel, secretary of the Ahmedabad Jewelers Association. "This time people were seen purchasing gold and silver coins, rather than jewelry, which led to a decline in sales figures."

Viewed longer term, however, strong demand from jewelry fabricators was reported during both of late June's short-lived dips below $650 per ounce. In late 2006, the Gold Price had to slip below $600 before Asian dealers recorded strong physical sales.

Buyers in India, the world's hungriest gold consumers, "are quite happy with gold at $650 an ounce," says Jonathan Barratt of Commodity Broking Services. He says the price of oil may break $77 per barrel, a fresh 11-month high – and Investment Gold has been moving in tandem with energy prices thanks to its traditional role as an inflation hedge.

"Summer months do not usually see much movement in the gold price and this season is unlikely to be much different," says the latest Metals Monthly from Fortis, produced by the Virtual Metals consultancy in London. "Even if pay talks in South Africa's mining dispute reach deadlock and result in a strike, gold has traditionally been less sensitive to supply disruptions than most metals – and the lower price is playing its part in boosting physical demand. Turkey's imports in June, when the price averaged a relatively low $656/oz, soared by 178%, year-on-year."

"Overall gold conditions look friendly in the near term to a break towards $674 resistance," says today's technical note from Standard Bank. "At current levels, physical interest appears to be dwindling but has potential to return in force on any further market dips below $660."

To Buy Gold Now ahead of this week's US inflation data, be sure to visit BullionVault for investment-grade gold traded on narrow spreads and very low commission costs.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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