Gold News

Gold Slips from S&P-Parity, But "Robustness to Continue" Unless Fed Chooses to Upset the Stock Market

The Gold Price slipped $8 an ounce from its best level since June 12th lunchtime Thursday in London, dropping back from $957 as European stock markets struggled near break-even but US stocks pointed higher.

"We will hold our Buy Gold strategy while it continues to close above key pivot 943," says a technical note from Scotia Mocatta.

"You must watch oil closely at the moment," reckons Phil Smith at Reuters Technical India. "Its recent consolidation is having an impact on gold in terms of short-term price movements."

Playing the role of "risk-asset" once again in July – rising with commodities, non-US currencies, equities and bonds as it did between 2003 and start-2008 – gold had very nearly matched the US stock-market's 3.1% gain so far this month.

At Wednesday's New York close, the rolling one-month correlation of daily Gold Prices with US stocks averaged +0.85 for July-to-date. A perfect correlation would stand at +1.0.

Gold's correlation with the S&P sank to minus 0.84 in late February, the second time it touched $1,000 an ounce. Over the five years starting Jan. 2003, monthly changes in the Gold Price showed a correlation of +0.62 with the S&P.

Gold rose 171% during that time. US stocks added 51%.

"Gold Prices are now at par with the S&P500 around the 954 level," wrote Ashraf Laidi at CMC markets here in London Thursday morning. That put the S&P index measured against gold "at its highest since May."

Last November, the Gold Price in Dollars crossed above the S&P's value for the first time in 18 years. It's held above New York's major stock index every day since then.

"The only viable means for the equity/gold ratio to regain its 2008 highs [where the S&P reached 1.10 times the Gold Price] would be for the Fed to begin withdrawing liquidity without upsetting equity markets," says Laidi.

"[So] with the Fed showing no sign of drawing down its liquidity injections any time soon, gold's robustness is likely to continue."

Fed chairman Ben Bernanke yesterday stressed the options available for withdrawing "excess liquidity" once economic recovery takes hold. But with US interest rates already at zero and the Fed effectively printing $760 billion for quantitative easing, "No wonder Mr.Bernanke likes to discuss his options for tightening monetary policy," says the Economist magazine.

"They are better than his options for [further] easing."

On a quiet day for economic releases, new US jobless claims for last week came in higher than expected at the US opening on Thursday.

Government bond prices rallied, pushing 10-year US Treasury yields down to 3.54%, while the Dollar also bounced.

For UK investors looking to Buy Gold, the spot price slipped 0.7% from Wednesday's 6-week high of £581 an ounce.

The Gold Price in Euros was little changed at €669 – up 2.9% from the 3-month low of early July.

"We have been tracking the physical market closely," says Walter de Wet in today's Commodities Daily from Standard Bank in London, and "Since the start of June physical buying has supported the Gold Price.

"However, we now believe this support has turned into resistance and there is more scrap selling."

Global scrap-gold supplies were estimated as high as 1,000 tonnes between Jan. and April,  equal to 40% of annual Gold Mining output, but are widely reported as falling sharply since then.

This week US scrap-gold service Cash4Gold announced its expansion into several key European markets, aiming to become the UK's biggest direct-response advertiser by Christmas.

As yet, however, it has no UK marketing agency, says MarketingDirect. "It needs to hit the ground quickly."

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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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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