Gold Hits "Slight Correction"; Price Surge Signals "Currency Crisis Fears", Threatens to "Just About Kill" the Jewelry Trade
Gold recovered from an overnight dip to $1101 an ounce in London dealing on Friday, heading into the weekend 0.9% higher from last week as world stock markets held onto near-3% gains.
Crude oil fell towards $76 per barrel. Government bonds were flat. The Yen and Pound Sterling rose, unwinding virtually all of the week's gains for Japanese and British gold owners.
"Gold is undergoing a slight correction, as the market is very long and the rise has been quite fast over the last few days," says a note from MKS Finance in Geneva.
"The USD is still determining the trend."
"The Dollar is a gold driver but it's not the only one," counters Walter de Wet in today's Commodities Daily from Standard Bank. "[There's] a clear step-change in the Gold Price irrespective of which currency is used.
"Real demand for gold is rising,"
"Gold's surge may indicate that investors fear the next stage of the crisis will occur in the foreign-exchange markets," says Philip Coggan in his Buttonwood column for this week's Economist.
"Developed-country governments have attempted to control bond yields through quantitative easing and to support stock markets through ultra-low interest rates. But they cannot support their currencies as well without risking problems in the bond and equity markets."
New data today showed US import prices falling faster than analysts forecast in October, while the monthly trade deficit widened by nearly a fifth to $36.5 billion.
The 16-nation Eurozone reported an end to its 15-month recession, but with weaker-than-expected GDP growth of 0.4% in the third quarter.
Thursday saw the US Treasury report a record October deficit, the 13th monthly shortfall in a row. The Federal Reserve last week vowed to hold its key interest at next-to-zero for an "extended period".
The Bank of England here in London has now created £200 billion of new money since March, using it primarily to buy government bonds as Whitehall's deficit hits a peace-time record equal above 14% of GDP.
China's central bank reported record Gold reserves this spring of 1054 tonnes. The Reserve Bank of India bought 200 tonnes of gold from the International Monetary Fund at the start of November. Russia's gold reserves have risen by more than 71 tonnes since January.
"[Thursday's] price action shows as a large outside day," says Scotia Mocatta's technical analysis today, "typically good reversal warnings."
"Gold and silver yesterday surpassed both the high and low from Wednesday," agrees a London dealer in their technical note.
A lower close would be needed on Friday for technical analysis to "confirm" a change in short-term direction. The Gold Price in Dollars has risen 6.0% since the start of November.
"You just don't see increases like this over the short term," says Steve Condon, head of investor advice at Truepoint Capital in Cincinnati, speaking to the Associated Press.
"This isn't materially different from gambling."
The Gold Price has risen for 11 of the last 13 weeks against the Dollar, compared with nine and seven against the British Pound and European single currency respectively.
"[People] are bringing in jewelry from the '70s and '80s they don't wear anymore," says Anthony Iannelli, owner of Iannelli Diamonds in New York's diamond district, speaking to the AP.
"They're following the news and see Gold Prices are high. They realize they have a little cache, and want to take it out of the vault."
Asked what will happen if Gold reaches $1500 an ounce, "I think it will just about kill the gold jewelry business," he says.
New figures released by the Birmingham Assay Office yesterday showed UK hall-marking down 40% between July and Sept. compared with the same period last year.
The number of silver and platinum items hall-marked both rose slightly.
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