Spot gold prices traded in a tight range during the first half of London trade on Wednesday, holding above Tuesday's US close at $653.50 per ounce.
The Morning Fix came in at $654 per ounce, down $3.25 from Tuesday AM but more than $10 higher from a week ago.
"You have the right stories for gold," notes Akira Doi at Daiichi Commodities in Tokyo. "The Dollar is relatively weak, while oil is strong. You have all these incentives that would merit a rise, and yet gold's not moving much."
Gold futures traded in Japan for April '08 delivery slipped 0.8% overnight. Global stock markets, meantime, rose by very nearly the same margin to hit a fresh all-time record according to the MSCI index.
"Over the last few days, crude oil as one of gold's major drivers traded a bit lower in Asia and Europe but made new 10-month highs," says a note from Dresdner Kleinwort, the investment bank.
"However, the truce announced by Nigerian rebel groups expires today and any incident there could have a stronger impact in thin [commodity] markets."
The US Comex is closed for the Fourth of July holiday today, along with the New York Stock Exchange. In the currency markets, the Euro held above $1.3620 in the first-half of London trade. Sterling spiked to a fresh 26-year high above $2.02 against the Dollar.
"The gold market has rebounded this morning, mainly because the Dollar is still weak," said Mario Innecco, a futures broker at Man Financial in London, to Reuters earlier. "Usually you see all the selling in New York and then in Asia and in early London time we rebound."
Looking further ahead, Citigroup today became the third major investment bank this year to announce a major hiring spree in its commodities team. The bank has recruited Rob Bayley as European head of commodities capital markets from Barclays Capital. Citigroup wants around 80 commodities staff in Europe by the end of 2007.
Commodities are proving a successful bet for investors in BlackRock Inc.'s $10 billion World Mining Fund. During the second quarter of this year, it posted the best returns among Europe's 10 biggest stock funds – due in part to strong investments in nickel production as the metal rose to an all-time record.
"The markets are in a commodity super cycle," reckons Graham Birch, head of Blackrock's team in London. "We are used to tough times [in the commodity sector] and at the moment the markets are working out for us."
More recently, Blackrock's World Mining Fund has put money into gold mining companies. Birch believes gold prices will continue to rise over the next two years, matching the gains in industrial metals. Speaking of Chinese consumers, "the amount of spare cash they have at the moment isn't as big as it will be," he told Bloomberg.
"We will see a China effect on gold."
Trading begins on the new Shanghai Gold Exchange (SGE) later this month. The China Daily says today that it will offer local investors a useful counter to high volatility in the Chinese stock markets.
"Trading in physical gold has so far been limited to professional traders," the paper says.
Private individuals in Europe and the US can already access the professional gold market – buying and selling physical gold bullion on 0.4% spreads and enjoying wholesale insurance and storage rates on as little as one gram – at BullionVault.