Gold Prices slipped further overnight, taking the pullback from Oct. 1st's 27-year high to 2.4% as commodity prices fell across the board and traders awaited minutes from the Federal Reserve's most recent interest-rate meeting for a signal on future US policy.
Data from Morgan Stanley, meantime, showed that options traders are paying the widest spreads ever on S&P contracts to protect against the risk of a sharp drop in Wall Street's major equity index.
In the Gold Market, last week marked "the first week in seven where spot gold traded below the previous week's low," says Christopher Langguth in this week's technical analysis for Mitsui.
"The pattern suggests the buyers are finished. If it falls back to $724.00 traders are likely to start discarding long positions. [But] right now there is no reason to be short."
Langguth's weekly chart also shows that a drop to $675 per ounce would be needed to test the two-year uptrend in Gold Prices last touched in mid-August.
The Gold Market has moved more than 11% higher since then.
"No major data out today, either in the US or European Union," advises today's gold notes from Standard Bank in Johannesburg. "However, the market will be scrutinizing the Federal Reserve minutes of the Sept. 18th meeting due for release [at 18:00 GMT] today.
"It was at this meeting that the Fed cut rates, and the Gold Market will be looking for some indication of future monetary policy."
Guessing that the Fed's minutes won't point to further sharp cuts in US interest rates, government bonds continued to sell off in early trade, keeping US bond yields near two-week highs.
The Dollar clung onto the bounce it made last week, meantime, as Germany's trade surplus in August was reported to be 12% below analysts' forecasts and one-fifth below July's number. The United Kingdom's yawning deficit, meantime shrank by just 11% to £4.1 billion ($8.2bn).
Prime minister Juncker of Luxembourg said on Monday that the Euro's 11.5% gain against the Dollar in the last 12 months "is more than enough to reduce global trade imbalances." But a meeting of European finance ministers has failed to find common ground beyond saying that the Japanese Yen and Chinese Yuan are too weak.
In early trade today, the threat of intervention kept the Euro below $1.4050 – down nearly 2.0% from its all-time of 1st Oct. – while the British Pound traded below $2.0340.
The Gold Price in Pounds Sterling meantime slipped back beneath £360 per ounce for the first time in three sessions. For German, French and Italian investors wanting to Buy Gold Today, the price dipped below €520 per ounce.
Crude oil prices also continued to fall after putting in their worst performance in seven weeks on Monday to trade below $79 per barrel.
"This week we should see stronger inventory numbers that should drive oil prices down further," reckons Steve Rowles, an analyst at CFC Seymour in Hong Kong.
"There is a feeling the supply concerns are not as great as before." Stockpile data for the United States is due out just before the Wall Street open on Wednesday.
Wheat futures retreated this morning too, losing 2.7% from Monday's open to suffer their fourth daily drop after a US forecast that farmers globally will sow at least 3.3% more acres of wheat in the next 12 months because of the recent record prices.
"With winter wheat planting going on in the Northern Hemisphere, the current high wheat prices provide strong incentives for farmers to increase acreage planted," agrees a Japanese trader interviewed by Bloomberg.
Wheat prices remain more than 70% higher for 2007 to date after poor harvests in Australia and Canada took stockpiles to a quarter-century low.
Copper and lead also fell in China overnight, while zinc prices dropped after a report from the International Lead & Zinc Study Group said this year's shortfall of 47,000 tons will become a 250,000-ton surplus in 2008, thanks to increased supply from China – the world's largest single zinc consumer and producer.
In the stock market, the Nikkei added 0.6% today after Monday's national holiday, while European equities rose 0.25% in early trade. Despite the Columbus Day holiday in the United States on Monday, Wall Street was open, but volume was weak. The S&P slipped 0.3%.
"We had a huge rally last week," said one US portfolio manager to Bloomberg. "It's natural that there might be some cautiousness going into what's going to be a very important two to three weeks of earnings."
The newswire also notes that the "put-call spread" between options on the S&P rising further – or falling from here – has now widened to its greatest level ever, averaging some eight percentage points since August.
The previous high came in July 2001, according to data from Morgan Stanley, just before the index dropped one-third of its value to its lowest level so far this decade.
Where next for the Gold Price? Is it really driven by the US Dollar and crude oil...and can it really protect you against inflation?