Gold News

Gold Drops Below $1100 as "Change" Hits US Healthcare, Euro & Indian Interest Rates; Heavy Gold Demand "Invisible" to Analysts

Gold priced in Dollars slipped 1.0% to a new one-month low beneath $1100 per ounce early Monday, falling as the US currency rose after Congress approved the White House's universal health-care bill, deemed as "what change looks like" by President Obama.

World stock markets also fell, along with crude oil, while Treasury bonds were little changed.

Silver prices dropped to a 3-week low vs. the Dollar of $16.73 per ounce, down more than 5% from last Wednesday's near 8-week high.

"Very heavy selling in an illiquid market" drove Friday's $20 drop in the Gold Price, says one Swiss dealer's note.

"We remain in a consolidation phase for the time being," says a London dealer, with the precious metals market "showing little directional preference."

Late Friday brought a surprise interest-rate hike from the central bank in India – home to the world's heaviest private gold demand – after new data showed a sharp rise in both domestic inflation and capacity utilization by industry.

French president Nicolas Sarkozy today began a reshuffle of his Paris government after being defeated by the center-left opposition in regional elections.

German chancellor Angela Merkel meantime told reporters that, contrary to expectations, solving Greece's deficit crisis will not top the agenda at a meeting of European leaders later this week.

The US Dollar rose vs. the Euro this morning, knocking the single currency back below $1.35 for only the third time in 10 months and helping buoy the Gold Price in Euros above €26,000 per kilo.

Ahead of Tuesday's UK price-inflation data – expected to show another breach of the government's 3.0% per year upper target – the British Pound dipped below $1.50.

The Gold Price in Sterling fell to £732 an ounce, unchanged from last Monday lunchtime in London.

"Unless investment in Gold ETFs show significant increases soon, Q1 2010 will have seen an enormous shortfall of over 400 tonnes of gold" compared with the start of 2009, says the latest Fortis Bank Metal Monthly from the VM Group consultancy in London, noting the huge accumulation of bullion for exchange-traded gold trusts this time last year.

The SPDR Gold Trust, traded in New York and holding gold to back its shares at HSBC in London, held constant at 1115 tonnes of Gold Bullion last week.

Over on the US derivatives market, the "net long" position in Gold Futures and options held by non-industry, speculative players shrank by 3% to a 3-week low, equivalent to 813 tonnes of gold.

The correlation between Gold Prices and the outstanding number of Comex contracts has only been half as strong so far this March as over the last 12 months on average.

Pondering gold's strength in the face of diminished ETF flows, "There is some evidence that jewelry demand is picking up [and] industrial and electronic demand might be recovering faster than we expected," says the VM Group.

"[But] perhaps then there is another major factor bringing the market into balance, even at these prices...a central bank purchase we don't know about? Has investment moved from the easily visible exchange-traded products to less visible Gold Bars, or even to a classic under-the-mattress purchase of coins?"

Last week the Austrian Muenze Oesterreich AG – manufacturer of Europe's best-selling Gold Coin, the Philharmonic – said sales in 2010-to-date were down by four-fifths from early 2009's record levels.

"We're getting back to business as usual rather than the hectic, panic demand we've seen over the last couple of years," the mint's marketing director told Bloomberg from Vienna.

"One reason for a relatively strong Gold Price could be the continual physical demand, from the industrial side as well for investment-bars," noted Wolfgang Wrzesniok-Rossbach at German refining group Heraeus in his latest Precious Metals Weekly on Friday.

"As with gold, physical demand for silver in the last two weeks was very robust, from the industrial side as well as for investment bars."

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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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