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Gold adds 1.3% in London as Inflation Data looms; Weak Dollar not funny for Eurozone Exports

Gold Prices dipped at the London close on Monday, ending the session 1.3% higher after stronger-than-expected US economic data sparked a short-lived rally in the Dollar.

On Wall Street, Citigroup reported a 57% drop in its third-quarter earnings and the S&P share index dropped 0.8% of its value by lunchtime.

The world's second-largest bank by stock-market value, Citigroup also confirmed its part in a new "bail out" fund to defend mortgage-backed bonds from slipping into freefall. (Read more here...)

Nomura Holdings, Japan's largest investment securities firm, said overnight that it has lost ¥73 billion ($620m) on US mortgage loans. Now cutting 400 jobs in the United States, Nomura expects to report its first quarterly loss since 2003.

Here in London the FTSE100 share index ended the day 1.3% lower, despite touching a 7-year high at the start of today's trade, while the Pound Sterling slipped back from a three-session high of $2.0430.

Gold Priced in British Pounds broke and then held above £370 per ounce, its highest level since gold's all-time top versus Sterling of May '06. Gold Priced in Euros recovered its own 17-month high at €534.50 just after the European session ended.

"There is very little chance this huge leap [in US data] will be replicated in other surveys," said Ian Shepherdson of High Frequency Economics after today's Empire State manufacturing index recorded a near-doubling in Oct. from the decline it showed in New York's regional output during Sept.

Monday brought few other economic figures, but Tuesday and Wednesday will see the Eurozone, UK and then United States report their latest consumer price-inflation data.

Although analysts forecast higher CPI numbers across the board, consumers are already "losing patience with the official statistics," says John Clemmow at UBS in London.

"Look behind the official numbers and you can see that [genuine] inflation is back, and I am concerned that it is rapidly morphing into the kind of structural inflation that characterized the '70s." (Is red hot inflation now baked in the crust? Read on...)

Looking further ahead, Thursday marks the 20th anniversary of "Black Monday", the Oct. 1987 plunge in world stock markets that erased 23% of the Dow Jones in one session.

"Markets are more sophisticated today, and risk is more dispersed," said one mutual fund manager to the newswires at the weekend, forgetting the near-10% slump in world equity prices seen only this summer when "quantitative trading" strategies compounded the panic caused by sharp losses on US home-loan derivatives.

Black Monday famously saw panic selling snowball thanks to computer-run "program trades" designed to mitigate risk.

Also on Thursday, US Treasury secretary Hank Paulson will chair a meeting of G7 finance ministers, where European leaders are expected to demand action on the damage caused to their export industries by the ever-falling Greenback.

"I'd really like to hear again Henry Paulson saying loud and clear that a strong Dollar is good for the American economy," joked French finance minister Christine Lagarde, no doubt failing to smile, in an interview with Les Echos at the weekend.

Exports from the European Union to the United States sank by more than one-eighth between Jan. and Aug. compared with the same period in 2006, notes Andrew Busch at BMO Capital Markets. The US Dollar dropped 7% of its value against the Euro during that time.

Over in Manhattan, the US earnings season will continue to pick up pace after Citigroup's dire results, with more than 80 constituents of the S&P500 index releasing their third-quarter results by Friday's open.

"Expectations are low," says Reuters, noting that its own analysts' survey puts total S&P earnings growth at just 3.2%.

US retail stocks are now forecast to report a 7% drop in earnings against a 3% rise forecast in July, says the Financial Times. Financial stocks altogether are expected to report a 6% fall versus a 9% rise forecast only 3 months ago.

Across the world in New Delhi, meantime, the World Gold Council's Indian office said today that gold imports may rose 17% to more than 840 tonnes this year, compared with 715 tonnes in 2006.

"If the volatility in the Gold Prices remains at reasonable levels, the fourth quarter" – which includes the peak gold buying of the Diwali festival – "could turn out to be a great season as far as imports are concerned," reckons local WGC director Ajay Mitra, speaking at the launch of a new collectible gold coin.

Gold imports to India – the world's hungriest gold market, where private individuals bought one ounce in every five sold worldwide last year – rose by almost 90% in the first six months of this year.

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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