Gold News

Gold Hits Two-Day High as Energy Costs Surge; Volatility Keeps Indian Gold Demand Pent-Up Ahead of Wedding Season

Gold Prices reached a two-day high of $812 per ounce by lunchtime in London on Wednesday, regaining $17 from Tuesday's low as global energy prices rose and government bonds were sold off following Wall Street's strong rally last night.

"Medium term, consolidation above $745 implies a test of the all-time high and thereafter $1,000 in 2008," reckon analysts at Barclays Capital in London.

They peg "near-term resistance" in the Gold Market between $812 and $818 per ounce.

"If there's no follow through below $790," said a Singapore gold dealer to Reuters earlier, "we should be able to end the week still above $810.

"I believe this so-called retracement should be a short-lived thing."

Crude oil prices also capped their two-day losing streak early Wednesday, adding 1.4% to $92.50 per barrel after Abdulla El-Badri – secretary general of OPEC cartel – rebuffed Washington's demands for higher output quotas when the oil cartel meets in Riyadh this weekend.

There is "not a shortage of oil" in the market at present, he told reporters this morning.

Asian stock markets, meantime, picked up where Wall Street's strong bounce left off last night, driving the Hang Seng index in Hong Kong nearly 5% higher for the day.

That surge drew investors out of government bonds, but European equities were unable to keep the rally running, giving back an early 1.2% gain to trade barely changed by lunchtime in London after HSBC, the world's third-largest bank, wrote off $3.4 billion in charges for the July to Sept. period.

Chief executive Stephen Green warned that "I don’t think anybody knows" when the credit crunch caused by failing mortgage investments will end. He now expects "more prolonged weakness" lasting into 2008 and most likely 2009.

Japanese stocks traded in Tokyo had earlier managed to add 2.5% higher for the day, capping the Nikkei's run of eight consecutive losses as the Yen resumed its dive on the currency markets, bolstering the outlook for after Japanese exporters.

The US Dollar also continued to slide in London trade, dropping below $1.4700 per Euro to lose 1.2% from the one-week high it had reached early yesterday.

The Eurozone economies this morning reported stronger-than-expected growth for the July to Sept. period. US business inventories for Sept. – plus retail sales data for Oct. – are due after Wall Street opens later today.

Today also brings the US Producer Price Index, forecast to show a steep increase for Oct. thanks to the surge in oil prices. The United Kingdom yesterday reported that Consumer Price inflation was running at a four-month high last month. Wholesale electricity prices in the UK today leapt 38% to a 20-month high after National Grid – the national network owner – warned of "inadequate system margin" for this afternoon.

But speculative hopes of yet-higher UK interest rates to come were dented by a sharp rise in Jobless Claims – up by nearly 10,000 in Oct. against City forecasts of a 6,000 drop. That news knocked 2¢ off the British Pound inside an hour, pushing it back below $2.0650 and helping the Gold Price in Sterling recover above £392 per ounce.

On Weds last week, gold reached an all-time high vs. the Pound above £403.

"It remains to be seen whether this drop in Gold Prices will attract physical buyers again," says Pradeep Unni at Vision Commodities in Dubai. "Near-term psychological support is spotted around $799, a breach of which would take the market to $780."

"As we proceed to the year-end, there could be some more profit taking. These volatilities are symptomatic of investors' desire to lock in profits and adjust portfolios."

Analysts at Mitsui in London note that last week brought "another record gold exchange position" in the futures market, but "the overall growth [in outstanding contracts] was relatively tame at 18 tonnes or 2%.

"The $850 level proved too difficult to surmount last week," Mitsui goes on, "and gold has significantly retreated from this area.

"Is this the retraction that the Gold Market was calling for? It is quite possible that gold will correct back to the $750 area, however in the current obese speculative environment, this is no bad thing for the overall medium and long term bullish trend."

Investors holding shares in the StreetTracks gold ETF sold out so quickly on Monday, they forced the trust to sell almost 11 tonnes of metal.

That unwound the last five weeks of accumulation, taking StreetTracks' total gold holding – used solely to "track" the Gold Price, rather than actually owned by its investors – down to 588.74 tonnes, a level first reached when gold was trading at $740 per ounce.

Meantime in India – the world's hungriest market for gold jewelry – "people have to buy as the wedding season is starting soon," says Pankaj Agarwal, a bullion trader at Brijwasi in Lucknow.

"But the Gold Price is so unstable that they are unable to make a decision."

"People have to buy for weddings in January," agrees another retailer in New Delhi, but Indian Gold Investment demand is also waiting for a further dip according to Reuters.

The newswire reports gold dealers in Mumbai taking advance orders to Buy Gold if it dips beneath $795 per ounce. Buyers would be keener below $790.

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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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