Gold News

Gold Bounces But Dollar Gains as Oil & Stocks Fall; Current Falls "A Buying Opportunity" Amid Long-Term Inflation

Spot Gold Prices bounced overnight Tuesday in Asia, regaining two-thirds of yesterday's sharp losses against everything except the US Dollar, which rallied hard from one-month lows on the currency market.

World equities added to yesterday's losses on Wall Street, dropping back below 4,000 on the FTSE100 here in London.

US government bond prices rose, pushing yields lower, while the Treasury prepared this week's auction of $59 billion in new debt.

Crude oil slipped for the third session running, falling towards $50 per barrel.

"India has been a notable gold buyer in recent days," reports Mitsui here in London today after the Gold Price lost 6% of its Rupee price in 3 trading days.

"However, based on our conversations with local dealers," Mitsui goes on, "it's likely that gold will need a dip towards the $850 level before the market experiences the true force of this buying interest."

Faced with new all-time record high prices above Rupees 15,000 per 10 grams, the world's No.1 consumer nation imported only 1.8 tonnes between Jan. and March.

That was 97% below last year's levels.

"Buying interest from India has started to emerge," confirmed a physical Gold Bullion dealer in Singapore to Reuters this morning, "although the amount is not huge."

"We have placed a lot of orders from Thursday onwards," said a private-bank dealer to LiveMint, the Wall Street Journal's Indian website.

"If gold remains below 14,500 Rupees per 10 grams, demand will continue to be there."

Over in Switzerland, a major refiner of metal for the Indian market, "I think with the [Akshaya Thritiya] festivities approaching and the Gold Price coming off, there may be some demand in the near future," said Afshin Nabavi at MKS Finance in Geneva earlier.

After what may have been an accounting-led sale on Friday, the huge SPDR Trust listed in New York maintained the volume of bullion it holds to back Gold ETF shares above 1,127 tonnes yesterday – more than 75% greater than this time last year.

Shareholders lose 0.4% per year in fees, charged by reducing the gold-backing for each share, now down to 9.827% of an ounce but still trading as equivalent to fully one-tenth.

"In the bigger picture, we are holding onto our view of a move to $1,200 an ounce, though this is now likely a story for the second half of 2009," reckons Jordan Kotick, chief chart-watching technical analyst in New York for Barclays Capital.

"We are disappointed by the move below $882, as this has alleviated the bullish potential," he told clients in a note Monday.

"While capped by $900, the risk is for further weakness to a swing target near $845, or even a measured move at $805."

On a fundamental basis, meantime, analysts continue to argue about the likelihood – and likely impact – of IMF Gold Sales on the free-market price.

Citing a "limited impact" after the G20 summit last week in London failed to double the previous proposal for 403-tonne sales by the International Monetary Fund (IMF), Goldman Sachs still forecasts an 11% drop in Gold Prices "over the two to three years of a proposed sale."

But whilst the IMF has approved the sale, "the member countries haven't," notes Mitsui.

"With the main voting right sitting with the US, this will probably take over 6 months to get approval (if any) from Congress.

"Our view hasn't changed & the current price falls should be seen as buying opportunities given the impact of global spending programs on long term inflation."

Rumors in the UK press today say that the IMF may raise its estimate of global bank losses as a result of the credit crunch to hit $4 trillion.

Last Friday, just after the G20 summit confirmed $5 trillion in monetary and fiscal stimulus, plus another $1.1 trillion of new IMF cash, Japan announced a further $100bn stimulus for its domestic economy.

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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