Gold News

Gold Slips as "Sea Change" Seen in Dollar's Decline; Inflation for UK Industry Hits 23% Per Year

Gold Prices slipped $10 early in London on Monday, trading below $890 per ounce as world stock markets ticked higher and government bonds sold off.
 
The Euro picked up 1.5¢ from last week's two-month low of $1.53. Crude oil slipped 0.5% from a new record high above $126 per barrel.

"Although financial markets are more optimistic about the outcome of the credit crisis," notes Walter de Wet in his latest Gold Market note for Standard Bank in Johannesburg, "current concerns are rising inflationary pressures and higher interest rates."

This week both Ben Bernanke of the US Federal Reserve and Jean-Claude Trichet of the European Central Bank will speak on the economic outlook, notes de Wet – and "the market will want their thoughts on the inflation/growth trade-off."

This week also brings a slew of global inflation data, with producer-price and consumer price data due from both the United States and Europe between now and Thursday.

Today China said its cost of living rose at a near 12-year record last month. Food prices rose by more than one-fifth from April '07.
 
Here in the United Kingdom, manufacturers suffered a 23.1% rise in input prices last month according to the Office for National Statistics, the sharpest producer-price inflation on record.

"The consumer slowdown will mean that retailers will be forced to absorb the bulk of these cost increases in their margins," reckons Paul Dales at Capital Economics in London.

Corn and wheat prices continued to rise in early trade Monday after wet, cold weather in the America mid-west delayed planting yet again at the weekend.

In the New South Wales region of Australia, in contrast, some 48% of the state is now in drought, meaning that the "winter crop may yet again be savaged" according to NSW's minister for primary industries.

"Although the outlook for the Gold Price is looking up again," says today's Gold Market note from Mitsui in London, "it is important to note that since the middle of March, this market has been trending downwards.

"The trend line comes in at $895 on the spot Gold Price. Look for a clear and confirmed break of this level to point to higher prices."

The latest Gold futures data, released Friday evening, showed the total number of contracts outstanding growing by 1.6% in the week-to-Tuesday, reaching a seven-week high.

But open interest still remains almost 25% below January's record high.

Over on the currency markets, "there is kind of a sea change taking place at the moment," believes Mitul Kotecha at Calyon investment bank in London. The net-position of forex speculators has turned bearish on the Euro – and bullish on the US Dollar – for the first time in two and a half years.

"It's probably the early sign of perhaps a more sustained turnaround," reckons Kotecha, repeating the new consensus that the Federal Reserve's much-signaled pause in cutting US interest rates will put a floor beneath the Dollar.

The broad Dollar Index has now gained 3.7% from its record low of March 17th – the day that Gold hit its new record high of $1,032 per ounce. Gold also hit record highs vs. the Euro, British Pound, and the Canadian and Australian Dollars that day, too.

Now the Fed is expected to keep interest rates on hold for the time being, rather than slashing them further. But this apparently pro-Dollar stance leaves the rate of interest for US cash savers at half the rate of US consumer inflation.

Real interest rates, after accounting for current growth in the cost of living, stand at minus 2%.

"It certainly wouldn't be wise for someone to take all of their money out of the stock market and put it in foreign currencies," believes Jeff Dobyns, manager for Raymond James Financial Services in Brentwood and Nashville, speaking to the Tennessean.com this weekend.

"It's probably too late in the game. Now might be a good time to sell. Whenever anyone says it's off the charts, that's a good indication it's getting ready to change."

In the stock market Monday, however, MBIA – the bond insurance giant that lost 87% of its value since May 2007 – reported its third quarterly loss on the run for the Jan. to March period, running a net loss of $2.4 billion.

Here in London, losses by the UK's three largest banks will reduce their combined tax payments for last year by £2.5 billion ($4.9bn) according to the Financial Times.

That's more than 5% of the corporation tax receipts forecast for 2007-08.

"In the US, the credit turmoil has led to a 13.6% in corporate tax receipts," the FT goes on.

Researching your first Gold Investment today? Don't pay more than you should! Make it cheap, simple & ultra-secure at BullionVault...

Adrian Ash

Adrian Ash, BullionVault Gold News

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals