Gold News

Gold drops $12 on frantic Dollar short-covering

Spot gold sank in late morning trade in London, dropping 1.5% against the major world currencies to a three-week low.

Against the Dollar, gold dropped $12 inside four hours from an intraday high of $687 per ounce.

Gold priced in Sterling gave back the same percentage, as did the Euro price of gold, bouncing off £338.75 and €496.50 per ounce respectively.

"The market is threatening to break down," reckons David Holmes, director of precious metals sales at Dresdner Kleinwort in London.

"Gold has not been able to react favorably to a weak Dollar or a strong oil price.

"Consequently we're seeing some capitulation."

But gold has signally failed to track the oil price all through the "commodities boom" of the last half-decade.

During the first 3 months of this year, the weekly correlation between gold and oil prices sank to precisely zero. (What 's really been driving this long-term bull market in gold? Read on here...)

The US Dollar, meantime, bounced hard and fast on the international currency market right alongside the drop in gold prices.

By the opening on Wall Street, the Euro had given back 0.5% to $1.3590.

The Pound, previously trading near a quarter-century high, sank even faster. It dropped 1.5 cents to $1.9905 – a nine-day low – even on news that UK house prices rose 10% this month from April last year. (For more on the pressures facing Sterling, click here now...)

"What we've seen is some very aggressive Dollar short-covering through the course of the morning," said Adam Cole, senior currency strategist at RBC Capital Markets in London.

"[But] I don't think fundamentally anything has really changed. The run of news out of the US in terms of the data relative to expectations is still poor."

Yesterday brought news that sales of new homes in the US are falling much faster than expectations. Friday will bring initial GDP estimates for the first quarter.

Why might the US data matter to the gold market? Click here to read on...

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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