Gold News

Gold Sits Tight as World Stocks Drop 6% for August, Dow/Gold Ratio Falls, Race Row Hits Bundesbank

Gold Prices held in a tight range as London re-opened after the Summer Bank Holiday on Tuesday, slipping $3 an ounce to $1235 as world stock markets fell again to near the end of August some 6% down on the month.

"A disappointing day for precious metals," says one Hong Kong dealer in a note.

"Despite its safe haven status, Gold came off in tandem with stocks, re-visiting Friday's low."

The US Dollar slipped back against the Euro today, but crude oil dropped back through $74 per barrel and government bonds rose everywhere, nudging 10-year US Treasury yields back down to 2.50%.

"Gold is caught in a bind," reckons Tokyo trader Kazuhiko Saito at Fujitomi, speaking to Reuters.

"Slowing growth and deflation worries are generally negative for commodities, putting a cap on Gold Prices. [But] at the same time, easy monetary policy continues to keep expectations alive that investment funds will return to gold, putting a firm floor under the market."

A raft of better-than-expected data from Japan and Germany was outweighed according to several London analysts by Monday's poor Personal Income stats in the US, where income-growth continues to lag price inflation.

The Bank of Japan said yesterday it's injecting ¥10 trillion ($117bn) into commercial banking loans, with a further ¥920bn ($10bn) of economic stimulus promised by the Tokyo government.

But the Nikkei stock index still sank 3.6% on Tuesday, however, falling to a new 16-month low – even as the Japanese Yen eased back on the forex market – after New York's Dow Jones Industrial Average closed Monday down 1.4% to finish just a few points above the 10,000 mark, unchanged from April 1999.

The Dow/Gold Ratio ended Monday down at 8.1, meaning it would take a little over 8 ounces of gold at current prices to purchase one unit of the DJIA.

The ratio peaked just shy of 43 ounces in Sept. 1999. Averaging 12 ounces since 1928 – and falling to record lows of two ounces and then one ounce in 1932 and 1980 respectively – the ratio fell to a 19-year low of 7.4 ounces in Feb. 2009.

"It is a data-heavy week," says Walter de Wet at Standard Bank today, noting the release of manufacturing indices for all major economies, plus US jobless data on Friday.

"This could keep the market nervous...and US equities remain under pressure. The strength in US Treasury bonds is supported by expectations of possible bond purchases by the US Fed, and [we] view these expectations of further monetary easing as positive for Gold."

Meantime, says Standard Bank's commodity team, "We continue to see gold buying in the physical market, although it has slowed. With gold closer to $1240 an ounce, there also appear to be some gold scrap-selling coming through."

Tuesday morning's sharp drop in Sterling pushed the Gold Price in British Pounds back above £800 an ounce – more than 8.4% above late July's three-month lows.

Euro investors wanting to Buy Gold today saw the price tick back towards €31,300 per kilo, meantime, just shy of last Thursday's eight-week highs.

In Germany this weekend, a row erupted over Dr Thilo Sarrazin, an executive member of Germany's central-bank, whose new book – which accuses Muslim immigrants of being a drain on the economy – has shot to the top of the best-seller charts.

A former member of the Berlin Senate, Dr Sarrazin "has repeatedly and persistently made provocative statements, especially on issues relating to immigration," the Bundesbank said in a press release on Monday, "categorically distancing" itself from his comments on Islam and "the Jewish gene", and threatening to take "prompt action".

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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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