Gold News

Gold ends Weds nearly 1.2% higher on Fed, inflation and subprime fears

From Chris Mullen at GoldSeek.com...

Spot Gold Prices rose to find over $4 gains in Asia on Wednesday before falling back off in London and trading near unchanged in early New York trade.

But the Gold Market then gained over 1% between 10:00 and 11:00 EST as Ben Bernanke began to speak before Congress and US oil inventory data was released. After topping $672 by late morning, gold then remained close to its high near $674 for the rest of trade and closed with a gain of 1.16%.

Silver dropped to find small losses at $12.87 in early New York trade before it also rose during mid to late morning and closed with a gain of 2.33%. The Euro Price of Gold rose near €488, platinum gained $11 to $1,318, palladium remained unchanged at $365, and copper rose roughly 2 cents to about $3.58.

Gold and silver equities rose throughout the day and ended with nearly 4% gains.

Bernanke’s testimony before the House Committee on Financial Services weighed his concerns over inflation versus worries about the housing market stemming from subprime mortgage problems. While Bernanke recognized that “sizable increases in food and energy prices have boosted overall inflation and eroded real incomes in recent months,” he also said he expected core inflation will fall in 2008.

He further noted that he thought subprime problems could get worse before they would get better and that certainly was not encouraging for Wall Street. Bernanke testifies before the Senate Banking Committee tomorrow.

Economic data on Wednesday meantime showed the US consumer price index rising 0.2% in June from May, down from 0.7% the previous month but ahead of expectations. The so-called "core" CPI excluding fuel and food rose as forecast by 0.2%.

US housing starts picked up to 1,467,000 annualized, but new building permits slipped from 1.52 million to 1.41 million annualized.

Today at 13:30 BST brings US initial jobless claims for the week-ending 14 July, expected at 310,000. Then comes the Leading Economic Indicators report for June, expected to show a decline of 0.1%, plus the Philadelphia Fed survey for July and then the latest Fed Open Markey Committee minutes from their June 28th meeting.

In the broader markets on Wednesday, oil rose over 1% above $75 and gasoline rose over 2% after inventory reports surprised with draws across the board instead of an expected build in gasoline at minimum. US oil inventories fell 500,000 barrels, gasoline inventories fell 2.3 million barrels, distillates fell 200,000 barrels, and refinery utilization rose 0.8% to 91.0%.

The US Dollar found slight gains early in US trade as the CPI came in a little higher than expected, but it soon fell back off to new all-time lows versus the Euro and new 15-year lows on the trade-weighted index overall as subprime worries spread to other US banks besides Bear Stearns after Bernanke expressed concern and news spread that BSAM itself now says two of its hedge funds have "no value left" due to poor bets on the sector.

Treasuries rose as interest rates dropped back near 5.00% on these subprime mortgage worries. The Dow, Nasdaq, and S&P fell markedly on poor earnings reports, higher energy prices, and concerns about failure in subprime loans and their impact on both the housing sector and the financial sector overall, but losses were roughly cut in half in the last minutes of trade on optimism over earnings reports due out late last night and early today.

In the gold mining sector Entree Gold announced an exploration agreement, Harmony Gold postponed a bond issue and Aurelian reported drill results.

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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