Gold News

Gold Sinks to Give Back All of the Week's 2.4% Gains as Fed Vows to Fix Banking Crisis, Dollar Bounces

Gold Prices sank $25 in thirty minutes at the US open on Friday as the Federal Reserve vowed to fix the world's on-going credit crisis with a series of $60 billion cash auctions every fortnight – precisely the sum that analysts at Goldman Sachs earlier warned US banks may lose in 2008 on bad commercial real estate and subprime residential mortgage investments.

After rising to new all-time highs above $936 per ounce, the Gold Market had already begun ticking lower as the opening bell drew near despite news that US employment pay-rolls shed 17,000 jobs in Jan.

Wall Street economists had expected a 55,000 increase.

The Gold Price then lost another 2.1% in the sharpest fall since May 2006 when the US Census Bureau said Construction Spending rose in Dec. The ISM Manufacturing index also showed a surprise increase for last month.

Back in Washington, the US Fed – which has now slashed Dollar lending rates by 225 basis points to 3.0% since the global banking crisis began last summer – put no time-limit on its new, extra-ordinary auctions of banking liquidity, promising to hold them every two weeks "for as long as necessary to address elevated pressures in short-term funding markets."

The minimum bid has been cut from $10 million to $5m to "facilitate participation by smaller institutions" – suggesting that the US central bank is worried about the solvency of non-major banks.

Yet the news buoyed the Dollar on the currency markets, pushing the Euro back to a two-day low beneath $1.4800 and sending the British Pound reeling.

Sterling shed more than three cents inside three hours to reach a one-week low of $1.9650. That temporarily supported the Gold Price in Pounds near this morning's new record highs above £470 per ounce, but the metal then caught up for British investors to unwind all of the week's gains at £462.

Western stock markets continued to surge on the Fed's announcement, pushing up the European bourses by nearly 2.0% for the session.

Dow futures, already turned higher by Microsoft's surprise bid for Yahoo – which sent the stock nearly 50% higher – gained 56 points to regain 12,700 for the first time in a month.

"Gold seemed bewildered today, but it's still above $900 and we need to get used to it," says Julian Phillips of the

"I think this is healthy consolidation. The Dollar failed to fall as expected, so it needed a pullback, but nothing has changed in the bigger picture.

"There is no jewelry buying in India right now, however, so the price is reliant on investment demand, with funds quick to take good profits."

Gold for immediate delivery had previously risen 10% so far this year,
averaging $889.59 per ounce in January – its highest-ever monthly price.

The Gold Price has now recorded five new monthly highs in the last six
months. Last month saw the worst performance from global stock markets
since the Asian Crisis of 1997.

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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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