Gold News

Gold Bounces on US Inflation Data; Real Wages Fall 0.5% as Foreclosures Jump

Gold Prices continued to fall at the London opening on Wednesday, slipping to a 7-session low of $860.50 per ounce before bouncing almost 1.0% as the US open drew near and the Dollar fell against the Euro.

Wall Street stock futures pointed lower as crude oil dropped 41¢ per barrel to $125.31.

Government bond prices also slipped ahead of strong US inflation data, pushing open-market interest rates higher.

"The Gold Market is at standstill," reckoned Tatsuo Kageyama, a precious metals analyst at Kanetsu Asset Management, in Tokyo this morning.

Pointing to the "psychologically important" level of $850 per ounce – the previous record top of Jan. 1980 – if it's broken "that could prompt a fall to $820 and even to $800," Kageyama told Reuters.

Japanese Gold futures ended Wednesday unchanged at ¥2,939 per gram – equal to $868 per ounce – for delivery in April '09.

They hit a 25-year high above ¥3,300 per gram at the start of March.

Now precious metals analysts at UBS, the troubled Swiss investment bank, forecast "further downside" in Gold, silver and palladium, pointing to "a combination of Dollar strength and profit-taking."

But in the physical Gold Bullion markets of Asia and the Middle East, "activity is quite good," according to Frederic Panizzutti, analyst at MKS Finance in Geneva.

In due course, "we expect the market to get back to Gold and push it higher," he adds. "But you need to consolidate somewhere between $850 and $950."

Across in India – the world's hungriest market for physical Gold Bullion – the recent Akshaya Thritiya festival saw a surprise surge in exchange-traded gold fund investment, reports the Economic Times.

Twelve months after the initial launch of these "paper gold" certificates, "Indian Gold ETFs outperformed all asset classes except banking sector mutual funds," the paper says.

During last week's Hindu festival – traditionally a period of strong jewelry sales –"the response for gold ETFs was fantastic on this auspicious [Gold Buying] occasion," says Rajan Mehta, executive director of the Benchmark Mutual Fund.

"Volumes soared and these two days alone added nearly 120 kg of gold with our custodian."

Here in Europe, in contrast, "we generally see only a little buying interest for either physical or non-physical metal," says Panizzutti at MKS.

But Western investors – particularly high-net worth investors – have made a significant shift into Physical Gold Ownership since the global banking crisis began in summer '07. (Read more about Gold: A Backstop for Wealth Protection here...)

For French, German and Italian investors wanting to Buy Gold today the price bounced 0.9% from a one-week low on news that industrial production in the Eurozone grew by only 2.0% in the year to March – down from Feb.'s 3.1% growth.

Just in time for the Euro to gain half-a-cent versus the US Dollar today, European finance ministers this morning welcomed the single currency's recent 4% decline from $1.60.

France's Christine Lagarde said she believes the Euro remains "10%, 15%, 20% above the appropriate fundamentals." New inflation data from the United States then showed only the slightest drop for April, with average US earnings falling 0.5% over the last 12 months as a result.

Household wealth also took a fresh hit from the collapse in US home prices, adds RealtyTrac, with some 243,353 homes receiving "at least one" foreclosure warning from their lenders in April – up 65% from the same month last year.

"Wall Street’s two cynical campaigns to enrich itself by inflating bubbles and draining investor savings (the tech mania and housing bubble) have done more than spawn two unnecessary recessions and a global financial crisis," believes Donald Coxe, head of global strategy at BMO.

"They force investors to rethink their risk appraisals and investment policies."

The Federal Reserve's key interest rate of 2.0% remains way below increases in the cost of living, now pegged at 3.9% year-on-year.

Today the Bank of England in London warned that UK inflation – now rising at a near-12 record – will "lead to a squeeze on real take-home pay which will slow consumer spending and output growth, perhaps sharply."

As in the United States, UK unemployment is now rising on the official data. "The number of unemployed people increased by 14,000 over the last 3 months," said the ONS this morning.

"This quarterly increase in unemployment occurred entirely amongst men."

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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.

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