Spot Gold Prices sank throughout the London session on Wednesday, ending the day at $673 per ounce, down $10 for the day, despite data that showed sales of existing US homes fell sharply in June.
Wednesday's most severe pullback in the Gold Market only came for US investors wanting to Buy Gold Today, however, as the US Dollar bounced hard from a near record-low on its trade-weight index just above the key psychological reading of 80.
Knocking nearly one cent off the Euro inside three hours – and coming on the back of no economic data whatsoever – the Dollar's sharp rally kept the Euro Price of Gold in a tight range around €493 per ounce during the first-half of London trade. The FTSE EuroFirst 300 equity index traded 0.5% lower before recovering its losses by lunchtime in Frankfurt.
US stock futures pointed slightly higher after Tuesday's 2% sell-off. Further earnings results were due, along with Existing Home Sales for June – expected to show only a slight decline – plus the Federal Reserve's latest notes on the economy.
The British Pound meantime retreated below $2.0520, nearly 1.5¢ off Monday's 26-year high. That capped Wednesday's early losses for British gold investors at 0.7% from the overnight peak. Gold Priced in Pounds Sterling recorded a London PM Fix of £328.55 per ounce.
Bucking the sudden turnaround in the US Dollar, the Japanese Yen has now recovered 2% of its value over the last week, moving from ¥122.50 per Dollar to less than ¥120.00 overnight in Tokyo – an 11-week high.
This bounce in the Yen, led perhaps by Japanese citizens covering their record short position in the currency, helped pushed gold futures at the Tocom some 0.4% lower, down to the equivalent of $688.40 per ounce. Japanese government bond prices today hit a seven-week high as the Nikkei stock index fell 0.8% to a six-week low. The price of credit default swaps, reports the Financial Times, climbed to their highest level this year, proving that risk-aversion sparked by the collapse of Bear Stearns mortgage-bond hedge funds has clearly spread to Japanese fund managers.
"Japan’s nine largest banks currently hold more than ¥1 trillion ($8.3bn) in products backed by US subprime mortgages," notes today's technical gold report from Standard Bank in Johannesburg. "That could see the USD suffer even more pressure on the downside should the market’s worst fears be realized."
Worst fears over the extent of "subprime contagion" were confirmed Tuesday by Countrywide Financial, the largest mortgage lender in the United States. Reporting a 33% decline in its April-to-June earnings – and adding that "we expect difficult housing and mortgage market conditions to persist" in the second half of 2007 – it admitted that defaults on the lowest-rated loans have now spread to its prime loan book.
"If gold breaches $690 an ounce then it is likely to go ahead," said Bhargava Vaidya, a bullion consultant in Mumbai, to the Economic Times of India overnight. "However, I believe gold may retreat from the current levels in the next week."
Open interest on the MCX gold futures exchange has fallen, reports the paper, suggesting that Indian investors are covering their short positions in the Gold Market.
"The continuing strength of the Rupee this week," says the latest Mitsui Refining Monitor, "has lead to pockets of demand out of India in recent days. In the current bullish trending market, we expect that physical gold demand will tail off and re-emerge in the latter half of Q3, but buyers will be standing by for any dips."