Gold News

Gold Bounces from Early Dip as Oil Slips, Asian Stocks Tumble, Dollar Rallies

Spot Gold Prices bounced from a 0.7% dip early Monday, reaching $861 per ounce by lunchtime in London as crude oil prices slipped on forecasts of warmer weather in Britain, Europe and the north-eastern United States.

"The prospect of [further] Fed rate cuts and inflation shocks going forward spell a constructive outlook for the Gold Price in our view," says Michael Lewis, chief commodity researcher at Deutsche Bank in London, today.

"The main event risk in our view is the tendency of the US Dollar to display seasonal strength during the first four weeks of a new year."

Right on cue the Euro dropped this morning to a three-session low of $1.4660, threatening the uptrend begun just before Christmas. The British Pound, meantime, continued its nine-week slide to dip below $1.9700 for the first time since August.

Losing value for the last six months running on its trade-weighted index, the Pound ended last week at its lowest level since Oct. 2003. The Gold Price in Sterling finished at a new all-time record above £436 per ounce.

For French, German and Italian investors wanting to Buy Gold now, the price bounced above last week's close early today, reaching €586 per ounce as Europe's major stock markets ticked 0.3% higher.

The Dax, FTSE and Cac had opened the day flat after Asian shares fell hard, led down by electronics manufacturers. Taiwanese stocks lost 4% at one point, beating the Nasdaq's 3.8% loss in New York on Friday. Japan's Nikkei ended today 1.3% lower.

At the Tocom futures exchange in Tokyo, gold for delivery in Dec. '08 slipped 0.4% to equal $865.98 per ounce.

"A stronger Yen was weighing on Tocom Gold Prices," said one senior trader to Reuters overnight as the Japanese currency moved back toward ¥109 per Dollar, the 30-month high first hit at the start of last month.

"The Yen also put pressure on overall [financial] prices," he added, while "weak oil prices also pressured gold. But you really cannot sell gold heavily as many investors want to hold gold for safe-haven purposes due to geopolitical tensions."

Iran yesterday expelled a German diplomat believed to be involved in negotiations over Tehran's nuclear ambitions. President Musharraf of Pakistan today admitted that former-president Benazir Bhutto may have been shot, rather than dying after banging her head on the roof of her car.

On the Afghan border, eight tribal leaders – said to be friendly to Musharraf's regime – were murdered in two separate attacks in the Taleban stronghold of South Waziristan overnight.

On the data front, meantime, Eurozone consumer confidence fell faster than expected in Dec., said the European Commission today, while Producer Price Inflation in the 15-nation currency union rose at 4.1% in Nov.

More than twice the rate of six months ago – and ahead of analyst forecasts – rising input inflation for European businesses comes after Friday's news of all-time record high price increases consumers in the Eurozone.

But when Jean-Claude Trichet, head of the European Central Bank, spoke just before the New York open today, he was expected to comment instead on the interbank lending market, near-frozen since the credit crunch first bit in August. Last month the ECB led five of the world's largest central banks – including the US Fed – in a co-ordinated injection of half-a-billion Dollars into Europe's money markets with a series of short-term loans.

As a result of this unprecedented action, free-market interest rates for borrowing Euros for three months have fallen from a seven-year high of 4.95% to 4.63%. But that remains well above the ECB's target rate of 4.0%, and the best policy-makers can do is "breath a collective sigh of relief that the year ended without a total meltdown," reckons James Nixon at Societe Généralé.

"Bearing in mind the weight of cash central banks have thrown into the market, the impact has been limited," agrees Ken Wattret at BNP Paribas, also in London.

"The only thing that will solve this [credit crunch] is time."

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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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