Spot Gold Prices neared the US open just north of $664 on Tuesday, their lowest level since Thursday, before bouncing nearly $3 higher on US data that gave wildly mixed signals to investors and savers.
"The Dollar is still the main driver of Gold Prices and there will be a set of important data points this week which may influence the Euro/Dollar exchange rate and hence gold," reckons Michael Widmer, director of research at Calyon Bank.
But today brought news that net purchases of US securities by foreign investors leapt in May, nearly 50% ahead of Wall Street's expectations at an all-time record of $126.1 billion. That was before the Dollar began its current decline, however, down to a quarter-century low against the Pound Sterling and a record low versus the Euro.
(Why do Dollar interest rates matter so much to gold? Get the facts in a full and detailed report on the 5 Myths of the Gold Market here...)
Inflation for US manufacturers then rose strongly in June, said the Bureau of Labor Statistics, but only excluding fuel and food costs. Producer price inflation actually went negative last month overall, while US industrial output rose 0.5% month-on-month – right in line with Wall Street forecasts – but the previous month's growth was revised down to -0.1%.
Now the latest US consumer price inflation data will be released at 08:30 EST Wednesday, when the Fed chairman, Ben Bernanke, will also begin a two-day testimony before Congress. Minutes from the most recent Federal Reserve meeting are then due on Thursday.
"The Fed chairman will remind his audience that inflation remains the bigger concern," says Gerard Baker in today's London Times, "and he can be expected to be asked which inflation he means. The headline rate looks dangerously high. The infamous "core" (minus food and energy costs) is, if anything, a little on the low side for comfort."
Inflation data already out in the United Kingdom sent the Pound to a fresh 26-year high against the Dollar above $2.0450 on the foreign exchanges this morning. The Retail Price Index showed a surprise jump to 4.4% per year, pushed higher by rising fuel and mortgage-interest costs.
"The Bank of England aren’t taking any risks," says Karen Ward at HSBC in London today, "and will continue raising rates in the meantime. We expect another hike in September" – and anticipation of just such a move sent the price of gold for British buyers below £327 per ounce before it too recovered the dip.
The metal also ticked lower for French and German investors wanting to Buy Gold Today, before rising strongly above €484 per ounce.
"Spot Gold Prices will have to close [the week] above $674 to rekindle further buying interest," says Christopher Langguth in the latest technical note from Mitsui. Although the trendline on his weekly chart beginning in July 2005 remains intact, "the price has been moving sideways since May 2006."
In the all-important Indian gold market today, reports the Economic Times, investors continued to shift out of bullion and into Mumbai's surging stock market, "fearing a rise in the metal's value in the previous few trading sessions was overdone."
Gold Prices had earlier fallen in the Tokyo futures market too, dropping 0.8% on the April '08 contract to the equivalent of $669.95 per ounce. The Nikkei equity index in Tokyo ended Tuesday 0.1% lower, while a raft of broker downgrades helped send the FTSE100 more than 0.8% lower by lunchtime in London. The broad FTSE EuroFirst 300 index of Europe's top 300 stocks traded 0.6% down.
US stock index futures pointed lower ahead of the PPI inflation data, and Wall Street was nervous ahead of earnings reports from Merrill Lynch, US Bancorp and Wells Fargo. For the year so far, according to Bloomberg data, finance has been the worst performing major industry group on the S&P, and the only sector to record a loss year-to-date.
"Financial shares have certainly been a weaker area of the market and continue to be under pressure," says Peter Dunay at Leeb Capital Management New York. "There is again that concern that inflation is looming. We are still vigilant about inflation and all this subprime stuff."