Gold News

Gold Slips in Quiet Trade But "Will Push Higher" on Inflationary Fed, Bank of England Policy

The price of Gold slipped again in London on Wednesday morning, bouncing 1% beneath Monday's 7-week high of $955 an ounce in what dealers called "quiet" trade.

US crude oil futures drifted back below $65 per barrel, while European stock markets dropped into the red for the first time in 8 sessions.

Short- and long-term government bonds pulled in different directions, but the US Dollar held steady on the currency markets.

"US bond yields declined sharply on Tuesday, supporting the US Dollar," notes today's commodities comment from Standard Bank in London, after "[Fed chairman] Bernanke indicated yesterday that the Fed funds rate should remain low for some time to come.

"We expect a range-bound day for Gold in the absence of any major data releases, although the bias could be to the downside."

The British Pound meantime recovered half of this week's losses at $1.6450 early Wednesday on news that the Bank of England voted unanimously earlier this month to keep UK rates on hold at 0.5%.

Spying "signs this month that the global economy was approaching a trough," the Bank said it will continue and review its Quantitative Easing limit of £125 billion ($200bn) at the August meeting.

New data this morning showed European industrial orders, UK industrial sentiment and US mortgage applications all coming in below analyst expectations.

Sterling's move knocked the Gold Price in British Pounds back from a 7-week high at £581 an ounce.

The price for Eurozone investors now Ready to Buy  Gold stayed below €668 an ounce – the upper end of the last one-month's range.

"It was fear of financial Armageddon that drove gold to those [$1,000] highs," said Calyon analyst Robin Bhar to reporters on Tuesday.

"That will not be a driver going forward. The two primary drivers we see pushing gold higher are a weaker Dollar...and massive injections by central banks of liquidity to support economic growth.

"This unconventional monetary policy is inflationary."

The investment-bank division of French giant Credit Agricole, Calyon has now raised its 2010 forecast for the Gold Price to $975, with the 2011 average seen at $1,025 an ounce.

Over in the official sector, "China's announcement of official bullion purchases can be seen as a defining moment for the gold market," writes GMFS consultancy head Philip Klapwijk in the latest American Advisor newsletter.

"A shift from net [central bank] sales to something close to 'neutrality' would be highly positive for Gold Prices, at the very least providing the market with a very solid floor and giving a major boost to sentiment and confidence in the yellow metal."

New data showed Tuesday that gold holdings amongst the Eurozone central banks were unchanged last week.

Their Central Bank Gold Agreement – which sets a cap on sales of 500 tonnes per year – has so far seen less than 150 tonnes of sales since the current year began last September.

The 5-year agreement, signed in 2004, is due to expire in 10 weeks' time.

Meantime in New York, David Einhorn of Greenlight Capital – who publicized the 35-to-1 gearing at Lehman Bros, and sold its stock short ahead of the investment bank's collapse last fall – has now taken a short position in the Moody’s ratings agency, reports Institutional Investor magazine.

"If your product is a stamp of approval where your highest rating is a curse to those who receive it – and shunned by those who are supposed to use it – you have a problem," he says.

Einhorn last week announced that he'd transformed a $390 million position in New York's SPDR Gold ETF into physical Gold Bullion.

The 40-year old hedge fund manager told clients that he made the switch because of the Cost-Savings that Owning Physical Metal outright will deliver.

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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