Gold News

Gold dips in London but extends record run above $700 per ounce

Gold Prices slipped back from a two-day high early Wednesday, dipping to record $730.55 at the Morning Fix in London, 1.3% below the new 27-year high hit last Friday.

The Gold Market still racked up its 13th consecutive day above the $700 mark, however.

The spike of May 2006 managed just four sessions above that level. The all-time top of Jan. 1980 only saw five days running when Gold Prices topped $700 per ounce.

"In terms of the Gold Price we do look forward to maintaining a price above $700 an ounce," said Tom Gaffney of the $68.6 million Ambrian Capital funds in London to Bloomberg today.

"The oil price, I don't know if it'll hit $100, but certainly we're seeing at least $80 going forward. We would say for the coming years."

In Wednesday's commodity trading, wheat futures rose for the fifth session running as Turkey, Pakistan, Iraq and Japan were reported to be stockpiling ahead of a poor harvest in Australia, the world's second largest wheat exporter.

Crude oil futures also rose, reversing course to come within 6 cents of $80 per barrel before a data release showing current US oil inventories at 10:30 EST.

Analysts expect a drop of 2.15 million barrels after US refineries slowed their imports last week. US durable goods orders for Aug. are due at 08:30 EST today, while Thursday brings GDP and new home sales data.

According to the Conference Board's US confidence report released Tuesday, the percentage of people planning to buy a house in the next six months has now slumped to a near 12-year low.

"Commodity prices seem to be holding up remarkably well to the crisis in the financial markets," says Trevor Williams for Lloyds TSB Financial Markets in London. Noting that Gold Prices are now well above $720 per ounce, he believes that "strong demand growth from the emerging market economies is expected to persist.

"This fast growth has also meant a sharp fall in stock levels for a range of commodities, further fuelling price inflation. This is one reason why the rest of the world will not join the US in cutting interest rates, and why long-term bond yields rose in the US when short term rates were cut to 4.75% on 18th Sept.

"There is concern about future consumer price inflation from the pace of economic growth and higher commodity prices."

"Cutting the funds rate has the potential for aggravating inflation, there's no question about that," admitted the president of the Philadelphia Fed, Charles Plosser, last night.

"A slower economy means that real interest rates must decline to bring about the appropriate adjustments to restore growth."

Real US interest rates now stand below 2.8% based on Aug.'s inflation data. When they turned negative thanks to the Fed's "emergency" rate of 1% between 2003 and 2005, Dollar-based investors wanting to Buy Gold saw the price very nearly double.

The collapse in real US interest rates during the late 1970s saw Gold Prices rise more than eight times over.

Back in today's financial markets, Japanese equities finished the day little changed and European stocks rose 0.7% on average in the first-half, even though a new report from the Bank of England warns that commercial lenders expect the ongoing "credit crunch" to impact corporate loans far more than loans to the household sector.

That news kept the Pound Sterling volatile below $2.0160, while the European single currency fell below $1.4130. The Gold Price in Euros held at €517.54 per ounce in early afternoon trade.

"Gold [in Dollars] has so far failed to re-test last week's high, but a period of consolidation was due following the recent rally," says Robert Lockwood for ScotiaMocatta.

"It is under slight downward pressure," agrees Shuji Sugata, a manager at Mitsubishi Futures and Securities in Tokyo, "especially after drifting off from near $740, but gold is not expected to fall sharply from here."

"There is plenty of bargain-hunting demand."

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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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