Gold News

Gold "Ends Corrective Phase" as Asia Seeks to Tackle Inflation; Rich West Merely Talks Tough

Gold Prices rose more than 1% in London's morning session on Friday, regaining last week's closing level of $888 per ounce after the US Labor Dept. announced the sharpest growth in unemployment since 1986.

Crude oil held onto Thursday's record $5 jump, while US stock futures pointed lower.

Corn prices reached a new record high on news of heavy rains and flooding in the US mid-west.

"I think we are still in a range of $850 to $900 for the time being," said one Hong Kong gold dealer to Thomson-Reuters overnight.

"Gold has been going through a corrective phase," says the latest Precious Metals Monthly from Standard Bank in Johannesburg. "The market is mixed, but [we] may see gold preparing the ground for renewed increases later in the year."

"I think for the moment," adds David Moore at the Commonwealth Bank of Australia in Sydney, "the US Dollar remains somewhat fragile.

"[So] I think there's still a possibility for Gold to get higher in the near term."

On the currency markets this morning, the Euro held onto its sharp gains near $1.5600 despite news that Germany's industrial output slipped 0.8% in April from March.

An index of so-called leading indicators compiled by the Organization for Economic Co-Operation & Development (OECD) then confirmed an economic slowdown across the 29-nation European Community, falling 3.5% from this time last year.

The Gold Price in Euros this morning neared last week's close just above €570 per ounce. The economic slowdown comes amid a sharp upturn in new loans to non-financial businesses,
now growing by almost 15% annually.

The much-awaited Non-Farm Payrolls report of US employment for May showed a net loss of 49,000. That took the jobless rate up to 5.5%.

In the energy markets, meantime, Thursday's record jump in crude oil prices was followed by a further 1.9% gain this morning to break $130 per barrel once again.

Working conditions at a Chevron plant in Nigeria – the world's 10th largest oil producer – may spark a strike, according to the Lagos press, cutting daily output by 450,000 barrels.

BNP Paribas in Paris has now raised its average 2008 forecast by almost one-fifth to $124 per barrel, while Morgan Stanley says oil prices could reach $150 by Independence Day on July 4th – "not unrealistic," according to an oil trader at BayernLB in Munich.

"Another $15 on top of the record could be the matter of a week. It's mainly driven by financial players as the Euro gets stronger again."

The Euro jumped Thursday after Jean-Claude Trichet, president of the European Central Bank, said the ECB may choose to raise interest rates in a bid to counter decade-high inflation.

Trichet's comments came after Ben Bernanke, chairman of the Federal Reserve, hinted that US interest rates may not go any lower from their current 2.0% – now only half the rate of even official consumer price rises.

(Read more about The Fed's Tough Talk here...)

Friday morning saw European government bond prices fall once again, heading for their biggest weekly loss in almost two months according to Bloomberg. Two-year Bund yields rose to 4.66%.

Two-year US Treasury yields, in contrast, rose to just 2.55%.

"Inflationary pressures are an increasing issue, not just in the advanced countries, but also in many emerging markets," said Masood Ahmed of the International Monetary Fund (IMF) on Thursday.

The central banks of both Indonesia and the Philippines yesterday raised their interest rates, and Malaysia is expected to follow suit soon.

The Reserve Bank of India says it may hike its key lending rate as early as next month to counter 8% inflation in prices.

Here in London, however – and despite rising consumer prices and growing public-sector demands for inflation-busting wage increases – the Bank of England is being asked to follow its latest "no change" decision with a rate cut.

"[If the economy slows further] there would be a compelling case for rate cuts later in the year," reckons Michael Hume at Lehman Bros. The British Retail Consortium says the Bank of England "must not close the door on more reviving rate cuts."

Citing the lowest new mortgage approvals on record, the Royal Institution of Chartered Surveyors agrees, asking for "a looser monetary stance in the near boost liquidity in the banking system."

The British Pound today mapped the US Dollar's moves on the currency market, slipping to a nine-session low against the Euro.

The Gold Price in Sterling spiked to a three-session high of £455 per ounce before holding 1% above last week's close at £452.50.

Over at the Tocom gold exchange in Tokyo – which is looking to expand its range of "mini-gold" futures contracts to meet strong demand from private investors – prices rose 1% today, closing the week above ¥3,000 per gram.

Gold Prices first broke that 24-year high for Japanese investors back in Nov. '07.

Trading in China's gold futures market is also set to increase after HSBC became the first foreign bank to gain access to the Shanghai Gold Exchange (SGE) on Thursday.

"It is an exciting policy to allow overseas banks access to China's Gold Market," said a spokesman for the SGE to the China Daily.

"A closer tie between China's and the global market is expected to be established."

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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