Gold News

Gold: "Buy the Dips" Advised as Dollar Slides, Oil Rises & US Home-Loan Market Slumps

Gold Prices spiked to $962.50 per ounce just ahead of the US open on Thursday, standing 1.5% higher for the week so far as European stock markets dropped another 1%, crude oil rose above $102 per barrel, and Wall Street futures slumped on the weakest GDP data since 2001.

Initial US jobless claims for the week-ending last Friday came in 6.5% ahead of forecast.

"I’m looking at $978 per ounce to be tested at least," said T.Gnanasekar of Commtrendz in Mumbai to earlier today.

"Basically, it’s going to be volatility against profit booking and that would also find lot of bargain hunting in the Gold Market.

Short-term, "I believe that there is still some upside and one can consider Buying Gold on the dips," he added.

As the Gold Market broke out of its tight overnight range, US economic growth for the end of 2007 was reported at a miserable 0.6% annualized, below Wall Street's already modest 0.8% consensus forecast.

That fourth-quarter GDP growth compares with 4.9% annualized between July and Sept. – and it would have been sharply negative if the cost of living used in the Census Bureau's sums were nearer to CPI inflation.

The GDP deflator applied by the Census Bureau to its headline growth rate rose by 2.7% annualized in the fourth quarter according to today's report. The Consumer Price Index, in contrast, averaged 4.0% annualized growth between Oct. and Dec.

Since the Federal Reserve began slashing its key lending rate in August to try and stall a credit-led recession, the US Dollar has now lost more than one-tenth of its value on the currency markets and dropped 42% of its value against Gold.

The Dollar held steady today around a new all-time low of $1.5140 per Euro, but "if the Dollar weakens further, then definitely we will see an acceleration in [gold's] upside trend," reckons Frederic Panizzutti at MKS Finance.

"Gold should remain pretty well supported. We see a range between $950 and $1,000."

In the broader commodities market crude oil rose back above $102 per barrel today after a report of militant attacks in Nigeria, the world's fourth largest producer. Israel meantime continued air strikes on the Gaza Strip, raising the Palestinian death toll to 17 – including a six-month old baby according to Reuters – after a rocket fired from the territory killed an Israeli overnight.

"We are at the height of the battle," said the Israeli prime minister, Ehud Olmert, when he met US secretary of state Condoleezza Rice this morning.

The United States also called on Turkey today to halt its ground offensive against Kurdish PKK rebels in northern Iraq. The head of Turkey's general staff replied that his troops may stay in Iraq for "one day or one year."

"New mining-production of gold has been anything but good for the mines of late," notes Wolfgang Wrzesniok-Rossbach in his latest Precious Metals Weekly for Heraeus, the German refining group. "In South Africa gold production fell 4.1% in December. Mali, with 57 tonnes annual production – not entirely insignificant – produced 9% in 2007."

One major reason, Wrzesniok-Rossbach notes, is "that the mines were coming closer to the end of their life."

"Gold is part of people wanting to buy into tangible, limited supply assets," as BullionVault told Bloomberg this morning. Faced with surging prices for food, oil and base metals, "gold [remains] a hedge against inflation [but only] for as long as interest rates are not keeping up with the cost of living.

With Ben Bernanke at the US Federal Reserve, however, "there's no fear of sharply higher interest rates any time soon."

Completing his two-day testimony to the US Congress today, the Fed chairman will know that Freddie Mac – the second-largest US mortgage lender – suffered losses of $2.5 billion in the last three months of 2007.

Chartered by Congress to help boost home-ownership rates in 1970, Freddie managed to lose $3.97 per share in the fourth quarter, some 30% worse than analyst forecasts. Home-loan lender Thornburg Mortgage now faces margin calls on $2.9 billion of securities it said today, while J.P.Morgan Chase saw it 2008 earnings downgraded by two brokerages this morning.

The Calpers pension fund (California Public Employees' Retirement System) announced that it may raise its exposure to commodity investments 16 times over by 2010 to some $7.2 billion.

The largest US pension fund, Calpers holds some $240 billion in assets. Last year it put 1.8% of its money into commodities for the first time.

"We plan on ramping up the program by hiring additional staff," says spokesman Clark McKinley. "We are excited about commodities, which have performed exceptionally well for us."

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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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