Spot Gold Prices dipped against the US Dollar as London reached lunchtime on Thursday, giving back an initial rally above $666.50 to trade at the day's low of $664.65 per ounce.
European stock markets also gave back early gains to trade near unchanged, while the British Pound fell hard on the currency markets following news that an un-named London institution had tapped the Bank of England for £1.6 billion ($3.2 billion) in emergency funds.
On the inflation front, meantime, wheat prices reached a new record high, and US crude oil futures traded at a 3-week high just below $74 per barrel. Bond traders, however, have raised their bet that the US Federal Reserve will cut Dollar interest rates next month, squeezing the real return earned by savers further still. (Find out why real interest rates matter to the gold market in this special gold report here...)
Both the overseas and domestic [Japanese] gold markets have been rocked by external factors," reckons Takashi Ogura at Kanetsu Asset Management in Tokyo. "There is a sense of unease or hesitation in the market that is making trading difficult."
But any sharp dip in the gold price should be viewed as an opportunity to Buy Gold, Ogura told Reuters. His long-term view remains bullish.
Tokyo gold futures for delivery in Aug. '08 today rose 0.8% against the Yen, even as the Spot Price of Gold for Japanese investors slipped 0.7%. Shares in the Nikkei stock index meantime gained 1.3%, and the broad MSCI Asia-Pacific index added 1%, after Wall Street closed sharply higher on the promise of a cut in US interest rates.
For European investors wanting to Buy Gold Today, the price continued to gain as the US Dollar pushed back both the Euro and British Pound. Gold Priced in Sterling spiked to touch £332 per ounce. The Euro Price of Gold stood above €489.20.
On the data front, US economic growth for the second quarter is due today, with economists expecting 4.1% annualized. That's followed by personal consumption and inflation data on Friday. Then comes the long Labor Day weekend, with US markets closed Monday.
Ben Bernanke, chairman of the US Federal Reserve will also make a much-anticipated speech tomorrow – the "most important" since he became Fed chairman, according to the Washington Post – entitled "Housing and Monetary Policy".
Late on Wednesday, a letter sent by Bernanke to Democratic Senator Charles Schumer of New York was released to the press. It said the Fed was "prepared to act as needed" amid the ongoing turmoil in credit markets – and taking the word "act" to mean a cut in Dollar interest rates, those equity traders still at work ahead of the long holiday weekend bid both the Nasdaq and S&P indices more than 2% higher by the close.
Rising stocks outnumbered falling stocks by 7 to 1, and the New York Stock Exchange felt it necessary to impose restrictions on some electronic trading programs 30 minutes before the close.
But trading volume was light ahead of the long Labor Day weekend, with 1.33 billion shares changing hands at the NYSE, nearly one-third below the average daily turnover.
"Anytime you hear something out of the Fed that it is monitoring the situation, that is reassuring," says Bennett Gaeger at Stifel Nicolaus, an investment company in Baltimore.
"The thought is that they are leaning towards a rate cut." (Why would lower Fed rates be good for gold? Click here to download a detailed report on How the Gold Market Really Works...)
The price of two-year US bonds were bid higher, despite extra supply coming from an auction of new two-year notes at the Treasury. That move pushed yields another five points lower to 4.10%.
Futures traders also raised their bets on a cut in Fed interest rates when it meets on Sept. 18th. Interest-rate futures now put the chances of a severe 50-point cut from 5.25% to 4.75% at more than four-in-ten, up from a 36% shot at the close on Tuesday.
But the threat of inflation continues to challenge the consensus that lower interest rates will prove good for financial markets. Crude oil prices rose sharply on Wednesday, hitting $73.53 a barrel in New York trade after a report showed a large drop in US crude and gasoline inventories.
To protect themselves against the threat of rising inflation as interest rates turn lower, private investors in the West may do well to note the strong Gold Buying demand coming from Asia and the Middle East.
After reporting sharply higher gold demand in India – the world's largest consumer of physical gold bullion – even ahead of the traditionally demand seen during the autumn wedding and festival season, the World Gold Council said on Wednesday that Turkey's bullion imports could set a new record this year.
"Consumption is stronger than last year and as good as 2005," reports Murat Akman, general manager of the World Gold Council's local office said to Reuters in Istanbul.
"The [recent] election has prompted people to put forward their weddings, holidays which boosted the demand. Strong tourist arrivals also helped." Turkey's gold imports rose 42% to 150 tonnes in the first seven months of this year.
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