Gold News

Gold closes London $5 lighter as Euro gets whacked by weak data

Gold prices slipped in European trade on Tuesday, ending the day in London $5 down at $684.50 per ounce, a three-day low.

The move came as the Euro fell hard on the currency markets, giving back nearly one cent against the US Dollar – its last three days of gains.

The dip to $1.3520 came on much weaker than expected German manufacturing data. (Read more about the Euro's own fundamental weaknesses here...)

Against the European single currency, gold in Euros ended London trade at €506 per ounce, little changed for the day.

Gold priced in Pounds Sterling moved 0.5% lower from Monday night's high to £344.

"There is a threat of a stronger Dollar in the near term," reckons John Meyer, an analyst at Numis Securities Ltd. in London.

"The Fed may raise interest rates to combat inflation," he believes.

But faced with the ongoing collapse of the US subprime mortgage market, the Fed is more likely to sit on the current 5.25% rate when it meets on Wednesday.

Last Friday's US employment data showed below-forecast growth in April, with manufacturing, construction and retail all shedding jobs. (Could lower US rates stem the slowdown in US home sales? Find out here...)

The Bank of England in London then meets on Thursday. It is expected to raise Sterling interest rates, also currently at 5.25%.

But the raise is likely to be just one more 'baby-step' of 0.25% – the fourth since the Old Lady lost her nerve and then had to find it again at the end of 2005 – despite inflation running ahead of target at a 17-year high. (Get the full story on the UK, inflation and Sterling here...)

And the same day in Frankfurt, the European Central Bank will keep Euro rates on hold at 3.75% according to analyst consensus.

Money supply growth, however – former target of the ECB's predecessor, the German Bundesbank – neared 11% year-on-year in March, a two-decade high.

Despite the ongoing explosion in Eurozone credit, political pressure to halt the ECB's slow-motion hiking campaign is now mounting in Spain and Ireland, where credit-fuelled property bubbles are beginning to unwind.

France's new president elect, Nicholas Sarkozy, may also add to calls for the ECB to stick with its easy-money policy.

"Independence doesn't mean indifference," said Sarkozy of the European Central Bank at the end of last year.

"We can't go on with the indifference of a certain number of bankers who don't understand that the priority isn't the fight against inflation which doesn't exist."

Gold says inflation is a threat to Europe, however. It's gained more than 15% against the European currency since the ECB finally began raising its rates at the end of 2005.

To learn more about what the gold price is saying about the history of the Euro single currency, click here now...

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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