Gold News

Gold Bounces with Stocks, Oil & Euro; Strong Correlation Shown "Under Extreme Conditions"

Gold Prices rose Wednesday lunchtime in London, cutting yesterday's 2.6% loss in half as world stock markets also bounced hard.

Commodities rose across the board, leading analysts to cite rumors of a fresh China stimulus package due from the Beijing regime on Thursday.

While US economic figures point to an accelerating decline in consumer spending (both auto and home sales sank to fresh multi-decade lows last month), China also announced three months of improved purchasing manager data, plus the first rise in economic output since Sept.

"With the S&P and Dow breaking below key resistance levels," says Walter de Wet, senior precious metals analyst for Standard Bank, this week's drop in Gold Prices showed "how highly correlated financial markets are under extreme conditions, irrespective of the asset class.

Looking ahead, market action "will be treacherous on the data front," de Wet warns, "most notably Thursday's ECB interest rate decision, and Friday's US non-farm payrolls.

"Investors might very well prefer the sidelines."

Elsewhere today, US crude oil prices further recovered from Monday's sharp losses, rising 3% to $42.80 per barrel ahead of the latest inventory stockpile data.

Government bonds slipped back across the board, with 10-year US Treasury yields forced 11 basis points higher to 2.99%.

"This downward correction for gold might be close to an end," reckons Phil Smith in his technical analysis for Reuters India in Mumbai today.

"We should get some natural support from this oversold position in the coming few days.

"For the longer term it is important the uptrend line [starting at $680 in Nov.] holds on a weekly basis. It is being tested now."

The rush of scrap gold sales in India – sparked by a collapse in the Rupee and pushing new gold imports to zero for the world's hungriest market – meantime continues, local news-wires report.

"Scrap sales have nearly trebled after a surge in Gold Prices to record highs, boosting supply in the market," said one jeweler in Mumbai's Zaveri Bazaar to Reuters.

Newly imported gold costs jewelers some 2% more than old scrap bought from local consumers. And India's flood of scrap gold sales is now being matched by a flood of US Dollar selling as well says the Economic Times today.

"With the Rupee falling to 52 against the Dollar," the newspaper reports from Mumbai, "money changers are seeing record sales from Indians who are ferreting out dollar bills left from foreign travel or gifted by relatives and encashing them.

"Some bankers speculate that the spate of sales could be from businesses bringing in illegal dollar reserves into the banking system."

Peering ahead for Gold in 2009, "Property, stocks, mutual funds, government securities and bonds are hardly offering attractive returns," notes Indian trade body the Associated Chambers of Commerce and Industry (Assocham).

It now forecasts average March Gold Prices of 15,750 Rupees per 10 grams, as "investment in gold and silver continue to grow."

Mumbai's Sensex index of 30 leading stocks today crept 0.2% higher, missing out on a sharp bounce in Asian markets.

Shanghai stocks jumped almost 6%, but Sydney's shares index – heavily weighted to Chinese commodity buying – fell after the Australian data agency reported a faster than expected drop in fourth-quarter GDP of 0.5%.

Here in Europe, a sharp bounce in UK data pulled Europe's Purchasing Managers Index ahead of analyst forecasts, but it still showed a continuing slide in activity.

German data was sharply weaker than expected, yet both the Euro and German Dax bounced in morning trade, with the single currency adding 1¢ from a 16-week low to the Dollar.

The Frankfurt stock index leapt 2.5% after dumping one-fourth of its value so far in 2009.

The Gold Price in Euros rallied to €732 per ounce from Tuesday's 3-week low of €721.

For British investors now Ready to Buy  Gold ahead of Thursday's much-expected cut to UK interest rates from the Bank of England, the price rose back above £650 an ounce – a level first breached in mid-Jan. that's four times above the level at which current prime minister Gordon Brown sold half the nation's gold reserves 10 years ago this May.

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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