Gold News

Gold dips after early bounce; central banks go "on hold" despite rising inflation, falling growth

Gold Prices in the spot market gave back an early 0.5% rally in London on Wednesday to trade just $1 above last night's New York close at $733.29 per ounce.

Gold Priced in Euros hit a ceiling at €520 per ounce before slipping back to €517.50. For British investors looking to Buy Gold Today the metal traded at £360 per ounce, more than 1.1% above yesterday's low but still 1.7% off last Friday's top.

"Profit taking after an aggressive rally is quite common," said Pradeep Unni at Vision Commodities to Reuters in Dubai, "especially with gold having gone against gravity for one month in a row.

"But market willingness to buy on any retreat from the highs is still intact and as long as it stays, aggressive sell-offs [in the Gold Market] will be deferred."

Unni pegs support at $725 per ounce.

In the currency markets the European single currency bounced 0.3% from the low hit late Tuesday, despite weaker than expected retail sales data and a poor reading on Germany's service managers' index.

Inflation in the Eurozone rose just above the European Central Bank's 2.0% target in the 12 months to Sept. But "given what's going on in the US and the Euro's strength, the European Central Bank might not be able to raise interest rates this year," reckons Charles Diebel, head of European interest-rate strategy at Nomura in London.

German bund prices rose early Wednesday, pushing yields lower ahead of tomorrow's interest-rate decision from the ECB in Frankfurt. The Bank of England is also expected to keep Sterling base rates on hold, despite a new report from the Royal Bank of Scotland showing that European service industries grew at the slowest pace in two years last month.

Overnight the Reserve Bank of Australia left its interest rates on hold at 6.5%, despite Australia's trade deficit nearly doubling in Aug. from July. Consumer spending also grew faster than expected according to data released today.

Wednesday's Wall Street opening will bring the key non-manufacturing index for September, plus a private-sector analysis from ADP Employer Services. It's forecast to show below-average jobs growth last month, according to a Bloomberg survey of economists.

Tuesday's pending US home sales data showed a 6.5% drop last month from August.

"The audacious rise in the Dow industrials to a record [above 14,000] will do little to prevent the millions of new 'For Sale' signs likely to dot US lawns soon," notes Jennifer Ablan for Reuters today.

Back in the Gold Market, meantime, "I still see a bit of selling in the cash market [today] because some people are nervous after the sharp drop," say a bullion dealer in Singapore today.

"But I would think gold still has a chance to go back to $740. I also heard jewelry sales in China are quite good despite the high prices."

In India, the Economic Times warns consumers not to delay their traditional gold buying ahead of the Diwali festival in November.

"The general perception centers around buying jewelry 30-45 days before Diwali to get a good price," says the paper. "However, according to an analysis of price patterns in the past seven years...Gold Prices rose by 2-5 per cent in the 45 days run-up to Diwali in 2000, 2003, 2004 and 2005."

The Central Bank of India today cut its retail-loan interest rate by 0.5% in preparation for India's post-harvest shopping season. "If banks had been open yesterday, we could have seen a lot more [Gold-Buying] orders," said a private-bank dealer in Mumbai to Reuters earlier.

Tuesday was a national holiday in India, so the domestic gold market – which is highly price sensitive, most especially during periods of rising volatility – was closed when world Gold Prices dropped 2.4%, ending their six-week surge. "Now people are waiting for yesterday's levels to return," the dealer added.

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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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