Gold News

Gold Slips from Overnight Bounce in London, But Dollar at Risk of "Losing Caste"

Spot Gold Prices slipped back from a 1% bounce overnight, opening London just below $800 per ounce as the US Dollar rallied once again on the currency markets.

Asian stock markets ticked lower, dropping 0.15% in Tokyo, while Europe's major bourses began the day 0.5% higher.

US crude oil rose 45¢ to $92.70 per barrel.

"We are trading in low liquidity," said William Kwan, a gold dealer with Phillip Futures in Singapore, this morning. "The market is easily pushed left to right."

For today, Kwan pegged the Gold Market's trading range between $795 and $815 per ounce.

"Bullishness is ample and the Gold Charts are far from hinting at a major crash," says Pradeep Unni, analyst at Vision Commodities in Dubai. "But still gold is moving quite slow, taking enough time to consolidate around [a new] range and then proceeding ahead.

On the currency markets this morning, the US Dollar hit a new five-week against the Japanese Yen above ¥112.50. That move capped selling in the Tocom Gold Market, and gold futures for delivery in Oct. '08 ended the week only 0.3% lower, equal to $808.60 per ounce.

The British Pound dropped more than a cent to the Dollar, meantime, while the Euro sank to a one-week low of $1.4565, limiting the drop in gold for European investors early Friday.

The Gold Price in Euros held above €548 per ounce. For British investors wanting to Buy Gold today, it held at £392 – right where it closed last week.

The Pound has now regained 1.2% against the Euro after flirting with 10-year lows at the end of last week.

"The market is focused on interest rates," reckons Charles Nedoss, senior metals analyst at Peak Trading in Chicago. Pointing to Thursday's US producer price inflation data, "what came out was inflationary," he told Dow Jones Newswires overnight.

"Normally, this would be very bullish for gold," agrees Leonard Kaplan of Prospector Asset Management, "but the PPI came in extremely hot – over 7% year on year. It is quite obvious to the world that the Fed may have made a bad mistake dropping rates and the chances for lower interest rates are diminishing quickly.

"Higher rates create a higher Dollar, which creates lower gold."

But "we're trying to deal with two polar opposite problems here," as Robert Kowit, international bond manager at Federated Investors, explained to Reuters' Investment Outlook Summit in New York yesterday. "I would say stagflation [slower growth but rising inflation] is an increasing concern for most investors."

"When we talk about what a Dollar crisis looks like, at least in my experience, it's been accompanied by a stagflationary environment." (For a free report on What's Really Driving Gold Higher Today, click here now...)

"The Dollar is at risk of a loss of caste," agrees James Grant, editor of the eponymous Interest-Rate Observer newsletter.

"The Dollar is losing its reserve currency status and deservedly so. Don't you know which country it was that exported the subprime mortgage crisis?"

Pointing to Tokyo's refusal to acknowledge its post-bubble losses of the early 1990s – which led the Japanese economy to "stew in the juices of failure for a full decade" – the US Fed should now "let markets find a level and be a little less quick to be the federal first responder to the scene of financial accidents."

Holding cash and value stocks, Jean-Marie Eveillard – "one of the most successful long-term" investors according to MorningStar's lifetime award – now holds a 7-8% position in gold in his portfolios for the $45-billion First Eagle Funds.

Eveillard told Reuters on Thursday that he's buying gold "as insurance against one to three years of difficult economic and financial circumstances" to come.

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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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