Gold News

Gold Dips from New Records vs. Dollar, Euros and Sterling; Bounces After Sharpest Drop in 3 Weeks

Gold Prices slipped from new 27-year highs above $845 per ounce as New York opened on Wednesday, dipping to bounce off $830 – its largest intra-day drop since Oct. 22nd.

The spot Gold Market has gained more than 11% since then. It's now added more than $180 per ounce in total since the Federal Reserve first began to cut US interest rates on Aug. 20th in response to the ongoing global credit crisis.

"Investors have lost confidence in the Dollar," reckons Leonard Kaplan, head of Prospector Asset Management in Illinois, speaking to Bloomberg.

"If Dollars get sold by the Chinese, gold could go a lot higher than the 1980 record," he added, referring to comments made overnight by two Chinese bureaucrats.

Cheng Siwei, vice chairman of the People's Political and Consultative Conference, said China should "compensate" for the loss of value in its $1 trillion US Dollar reserves by buying assets in stronger currencies.

Xu Jian, a vice-director of China's central bank, added that the US Dollar is "losing its status as the world currency."

That news pushed the Dollar to new all-time lows on the currency markets, with the Euro breaking $1.4700 slipping half-a-cent by the close in London. The British Pound held onto its new quarter-century highs above $2.1040.

But investors wanting to Buy Gold Today also saw new highs – and then a severe dip – against the world's other major currencies, too. Gold Priced in British Pounds nearly touched £403 per ounce before slipping by 2%. German and French buyers saw gold break above €576 – a new 23-year high.

The Gold Price in Euros then dropped nearly €10 per ounce before bouncing to trade at €571 – more than 1% higher for the day – by the close in Frankfurt.

US stocks fell sharply lower right from the Wall Street opening, meanwhile, losing 1.3% on the S&P index by mid-morning.

Crude oil prices had earlier risen above $98 per barrel, before they too slipped back and dropping $1 on news that US energy stockpiles fell broadly in line with analyst forecasts last week.

Rising input-cost inflation remains an ugly challenge to the ongoing bull market in government bond prices, however. Even as the yield on two-year US Treasury debt was pushed 8 point lower to 3.63% by investors bidding up prices, the United Nations warned that soaring food prices pose a threat to international security.

The UN's Food & Agriculture Organization today said the cost of importing food worldwide will rise by 21% this year to $745 billion. That may force lower-income nation's to follow Russia's lead and impose price controls to avoid social unrest.

"Rarely has the world witnessed such a widespread and commonly shared concern on food price inflation," reports the UN's Food and Agriculture Organization, which recently declared 2008 the year of the potato.

"Soaring grain prices are to blame, especially for wheat. But freight costs have [also] doubled since the last year." (Will it be that Gold Rises as Inflation Surges & Bond Yields Fall? Get the facts in this Free Gold Report...)

Geo-political tensions rose yet again today, meantime, when Russia’s lower house of parliament today voted 418-to-0 to suspend a treaty limiting the number of troops and tanks stationed in Europe. The suspension will begin on 12th Dec. after approval by the upper house and President Putin.

In Pakistan today, Benazir Bhutto – the former prime minister expelled on corruption charges – called for a "long march" against the martial law imposed by the current prime minister, army general Pervez Musharraf.

Imran Khan, the leader of the Movement for Justice Party – also now under house arrest – added that "If we do not resist this [emergency law], if we do not struggle against it, he will take the country towards destruction."

Across the border in India, the surging Gold Price has dented local jewelry demand according to the Bombay Bullion Association – and while Western investors pushed the market higher last month, gold imports slumped to the world's hungriest gold-buying nation, totaling just 14 tonnes.

October last year saw gold imports to India hit 64 tonnes, said the BBA.

"People are not used to such a phenomenal rise in Gold Prices in such a short time," says Ranjit Rathod of MNC Bullion in southern India. "Economic sense is prevailing over seasonality and tradition."

But with the Hindu festival of Diwali on Friday – when Buying Gold is thought to bring good luck and fortune – many Indian citizens now feel themselves to be forced buyers even at today's record prices.

"On this fortunate day," said one man in Vashi to the newswires today, "no matter the rise in prices, if something has to be purchased it has to be done."

"There has been a 20-30% drop in sales," notes a gold dealer at Nikita Jewellers in Vashi. "[But] business during [the current festival of] Dhanteras is good."

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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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