Gold News

Gold Loses 2.3% in 45 Minutes as US Stocks Tumble on Profit Warnings

Spot Gold Prices slid in late London trade on Tuesday, giving back the last three session's gains so far as US stocks sank on a raft of bad news and fund investors were forced to raise cash to cover redemptions.

The Nasdaq dropped 1.2% after Intel – the microchip giant – cut its first-quarter profits guidance. Merrill Lynch then slashed its earnings forecast for banking rival Citigroup on fears of a further $18 billion loss on bad mortgage-bond investments.

The Dax in Germany closed the day 2.2% to the bad as the Euro held at $1.5200, sparking calls for central-bank intervention to support the Dollar and thus defend European exports.

Australia raised its key lending rate to tackle inflation, while Canada cut its interest rates to stoke the economy.

In the US, "reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole," said Ben Bernanke, chairman of the US Federal Reserve, to a banking conference today.

His 225 basis points of rate cuts since August have so far failed to stem the worst US house-price slump since the Great Depression. But they have encouraged a collapse in the US Dollar, now trading at record lows against the other major world currencies, as well as a 49% increase in the Gold Price.

"All in all, we think gold is overdue for a correction," wrote the analysts at Scotia Mocatta, the Gold Bullion dealer, in their latest note this morning. "There are two warning signals that have us watching the Gold Price action closely.

Firstly, "total open interest [in the gold futures market] at 508,000 continues to be well off its early January high of 610,000 – which hints that some of the push higher has been due to shorts closing out their positions and not just longs building on theirs.

"The second concern is the overbought readings from short-term stochastics."

Rising 15% from the start of January, however, "the move is not parabolic or meteoric," counters the latest analysis from Mitsui, the precious metals dealer. "Rather, the trend has been healthy since New Year.

That lack of growth in Gold Market futures also points to a lack of speculative frenzy in the Gold Market, even as pundits and analysts alike have called for $1,000 per ounce.

"Once that Gold Price is printed," says the team at Mitsui, "expect pandemonium to follow."

Platinum prices in contrast have risen by almost 50% in 2008 so far, rising further to a new record above $2,224 per ounce before the precious metals took a dive on Tuesday on a forecast from HSBC that this year's supply-demand gap will hit two million ounces.

Record high prices and tight supply for this industrial metal only make platinum vulnerable to substitution, warns Wolfgang Wrzesniok-Rossbach at German refining group Heraeus.

Forecasting a 30% drop in platinum jewelry sales worldwide, "I also expect, not immediately but over some months, the demand from the auto industry to go down," he told Bloomberg today. "I think they are speeding up substitution" of platinum with palladium for use in catalytic converters, he added.

The cheaper metal costs barely one-fourth as much per ounce after its dominant position in the auto-industry was destroyed during the late 1990s by Russian exporters. They attempted to squeeze the palladium market higher, but forced a mass switchover to platinum use instead.

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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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