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Gold Drops on Surprise US Data as Euro & Pound Slide; UK House Prices Falling at 15-Year Record

Gold Prices fell 0.8% at the US opening on Wednesday as a surprise upturn in economic data boosted the Dollar and pushed government bond prices lower ahead of next week's decision on US interest rates from the Federal Reserve.

The Mortgage Bankers Association (MBA) said today that US home-loan applications jumped by more than one-fifth last week. Applications to refinance jumped by nearly one-third.

The surge in new mortgages came as average interest rates charged on 30-year home-loans fell from 6.09% to 5.82%. One-year ARMs (adjustable-rate mortgages) saw the initial "teaser" rate rise, however, but the Dollar pushed ahead with an earlier gain to take the Euro down to $1.4665, more than one cent lower for the day.

The Gold Market also continued to drop from a four-session high of $806.50 per ounce as jobs data from payrolls group ADP reported growth of 189,000 in private-sector employment during November.

Wall Street analysts had been expecting only 53,000.

The Bureau of Labor Statistics then announced a rise in non-farm productivity of 6.3% annualized (vs. 5.6% forecast) plus a drop of 2.0% in unit labor costs for the July to Oct. period, and by 09:00 EST the spot Gold Price was struggling at $796 per ounce.

Crude oil meantime broke above $90 per barrel after the Opec oil cartel agreed at its meeting in Abu Dhabi today to keep output quotas unchanged, pushing the price 2% higher in European trading – and that news "spurred late buy-backs in gold" in Tokyo, according to Tatsuo Kageyama at Kanetsu Asset Management.

Tocom Gold Market futures for delivery in Oct. '08 also closed Tokyo trade more than 2% higher as the Nikkei stock index ended the session 0.8% to the good.

Here in London, rising oil and base metal prices helped the resource-heavy FTSE100 index add 1.2% by lunchtime, while the Dax in Frankfurt rose 0.75%.

For French, Italian and German investors wanting to Buy Gold Today, the price rose above €546 per ounce before slipping to €542.20 as Wall Street opened.

Now standing more than 3.0¢ below its lifetime record high of mid-Nov., the Euro was driven lower by a weaker-than-forecast German business confidence index, plus a 0.7% drop in European retail sales reported for Oct.

The British Pound also skidded on a slew of poor data, slumping to a two-week low beneath $2.0400 as the Halifax house-price index dropped 1.1% for the month and the Purchasing Managers Index (PMI) for the service sector came in 2% below City forecasts.

"The past three months have seen the steepest real fall in UK house prices at 13.1% since the dark days of 1992 and the Major/ERM recession," notes Sean Corrigan of Diapason Commodities Management in a private email to BullionVault today.

"Of course, thanks to Brown’s long reign of 'Prudence' household debt as a fraction of income is twice what it was back then at 160%. Moreover, mortgage equity withdrawal has averaged more than 6% of disposable income over the past five years – a proportion every bit as great as that in sub-prime racked America.

"And people think Sterling is a refuge from the Dollar!" (Read more from Sean Corrigan on the Truth About Inflation here...)

Gold Priced in Pounds Sterling today rose to a six-session high above £394 per ounce in early trade. Two weeks ago it broke new all-time records at £404.50.

"Our view is that the commodity bull market is still very much in its early stages," said Kevin Norrish of Barclays Capital in New York yesterday.

Launching the giant UK bank's 2008 outlook for natural resources, he pegged crude oil well above $100 per barrel and forecast a 10% gain in copper prices. Norrish believes Gold Prices will average $830 per ounce next year, more than one-fifth above the average price of the last 12 months.

"The gain, which tops the $755 average of 15 analysts surveyed by Bloomberg," the newswire says today, "will be aided by declining production from mines in South Africa and rising inflation, which attracts investors seeking a haven."

Since the start of Sept. this year, broad-based commodities investments have returned more than 20% gains. Government bonds, on the other hand – the apparent 'safe haven' of choice for institutional investors as the global credit crunch bites – have returned less than 10%.

Gold Priced in Dollars has risen by more than 18% since Sept. 1st. It closed November with its highest monthly average on record – the third such new high in succession.

Looking to Buy Gold Today, but don't know where to start? For direct access to live Gold Market prices – plus safety, security & simplicity guaranteed at very low cost – click through and learn more about BullionVault now...

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.

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