Gold "decoupled from Dollar"; holds above key levels in Euros & Sterling

Spot Gold Prices held above the key highs hit Tuesday as New York opened today after recording the highest London Fix this morning since July 24th.

Gold also stayed at a 16-week high versus the Euro, and rose above £339 for British investors.

"Gold has seemingly decoupled from the US Dollar," reports Tom Tragget for the Forex Profit Alert, "as both have moved higher in recent sessions at the same time.

"From a technical perspective, a break above $687/$688 could open a move to test the 2006 highs above $725 – especially as it would mean a flip of the move from $687 to the low of near $642 seen during the height of the sub-prime panic on August 16th."

The US Dollar held steady early Wednesday, but interest rate futures continue to put the chance of a cut in the returns paid to Dollar savers at 100% when the Fed meets on Sept. 18th.

Further pressure on US interest rates may come today from the Pending Home Sales data due for July at 10:00 EST, expected to show a 2% fall from June's 5% increase.

Already the ADP employment report has shown a marked drop in new hiring for Aug., less than half the total expected by Wall Street. These numbers usually foreshadow the official US unemployment report, next due on Friday. The Fed's monthly Beige Book of key statistics and analysis follows today's London close.

Early this morning, German and UK data releases have shown the service sector in both countries growing faster than forecast in Aug. But that news failed to prevent a 0.5% dip in Europe's major equity indices, and it did little to reverse the Dollar's two-day rally against Euros and Sterling. They continued to trade below $1.36 and $2.01 respectively as growth in Eurozone retail sales was reported sharply below forecast for July, adding to speculation that the European Central Bank will choose to keep its interest rates on hold tomorrow.

"[August delivered gold's] third highest monthly close ever," notes Christopher Langguth in today's TechniChris note for Mitsui. "In 1980 the January close was $681.50, $1 higher than April 2007."

The Gold Market ended last week at $672 versus the Dollar. It's since gained more than 1.5% against both Euros and Sterling.

"The immediate objective [now] is the recent high at $692.50," says Langguth, "followed by last year’s high, $723. The Gold Price would have to fall below $640 to turn the monthly trend down."

Today in Tokyo, gold futures traded for delivery in Aug. '08 gained 0.7%, while the Nikkei stock-market average fell 1.6%, led lower by property shares. Reuters also points to aggressive sales of stock-index futures, as investors sought to square their positions before the first-half of Japan's financial year ends on Sept. 30.

Over in India, gold sales to the jewelry sector – now enjoying its strongest season of the year – slowed dramatically after the overnight jump in New York prices. "Demand for gold has almost stopped," said Harshad Ajmera, head of J.J.Gold House in Kolkata to Reuters. "People expect a fall...They will wait for two to three days."

He says Indian buyers were looking for a pullback worth $4 per ounce from gold's current six-week highs.

"By most measures gold is now overbought, at least from a short-term perspective," says Phil Smith for Reuters India. "So it’s not unreasonable to expect some consolidation from a technical standpoint."

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