Gold News

Gold flat despite weak US data as holiday weekend begins

Gold prices continued to trade flat as London moved into the close on Friday.

The spot gold market failed to turn higher after Thursday's mass sell-off in risk assets even after weak US housing data pointed to lower Dollar interest rates ahead. (Get the full story here...)

Ahead of a long holiday weekend in the City and on Wall Street, the PM Gold Fix in London had earlier come in at $655.30 per ounce, the lowest price since 19 March.

Against Sterling gold held around £330, also down 1.5% for the week.

Gold prices vs. the Euro suffered less of a markdown, after the single currency struggled all week vs. the Dollar.

Even so, French and German investors wanting to buy gold now enjoyed a 0.6% discount from the previous Friday.

"Investment funds are flowing out from gold, base metals and from other commodities because of the Dollar's strength against the Euro," reckons Tetsu Emori, chief strategist at Mitsui Bussan Futures in Tokyo.

"At the moment, the trend of the Dollar is the key to gold."

So far this year the Euro has gained 1.7% versus the Dollar. After this week's $5 drop, gold priced in Dollars remains 1.6% higher.

"The relationship between the gold price and the movement in the Euro in recent days has been very, very strong," noted David Moore at Commonwealth Bank in Sydney to Bloomberg earlier Friday.

The reason? Gold – like the Euro – has been attracting money as US interest rates failed to entice investors.

But the European single currency faces huge structural and political challenges – not least a crisis at Spain's central bank.

And after Thursday's stronger than forecast US housing data, "people are coming to grips with the idea that not only are there not going to be rate cuts any time soon, but if the 10-year Treasury yield goes much higher, then people are going to start talking about the Fed lifting rates again," reckons Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.

Sales of new homes in the United States rose 16% in April from March according to figures released just after the Wall Street open.

That was the fastest jump in 14 years.

But what the market missed in selling off stocks, gold, Euros and other Dollar alternatives on this news was that the average price of those extra homes sold sank at the fastest rate on record. (Read more here now...)

The median price of a new home sold last month fell by more than 11% from March. In short, the only way US builders can shift inventory of unsold homes is to discount massively.

"Investors are throwing the baby out with the bath water and gold is the baby," says David Holmes, director of precious metals sales at Dresdner Kleinwort in London.

"We are going through a period of Dollar strength against the Euro and it's affecting all of the metals."

Friday brought fresh US housing data saying that existing home sales & prices both fell.

Looking further ahead, "[we'll see] a significant increase in defaults and foreclosures," warned David Wyss, chief economist at S&P, during the Mortgage Bankers Association's expo in New York on Thursday.

The US Fed's certain reaction will be to cut Dollar interest rates to try and prop up the market.

Gold would be sure to rise in response (find out why here). But would lower rates save the housing market from a long drawn-out slump? Read more here...

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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