Gold News

Gold Sinks to One-Week Low as Commodities Sell Off, Global Stocks Suffer Worst Quarter Since 2001

Spot Gold Prices sank into the close of London trade Monday, losing 2.2% to a one-week low as broad commodity indices sold off, Western stock markets ticked higher, and the US Dollar held steady on the forex market.

Crude oil prices lost more than $3 per barrel for the session. All told, the Reuters-Jefferies index of 19 major commodities lost 1.7%.

"A drop in commodity prices might dull some of these inflationary pressures that gold has been benefiting from," reckons Stephen Platt, an analyst at Chicago-based Archer Financial Services Inc.

But inflation in the 15-nation Eurozone surged again last month according to new data today, pushing above 3.5% year on year.

The European Central Bank looks to cap price inflation below 2% per year, but its former key target – of limited growth in the money supply – has long been abandoned.

Money supply growth in the Eurozone continued above 11.3% per year last month, the official data agency said Monday. The initial target when the ECB was founded in 1999 stood at 4.5% per year.

Despite a marked drop in Eurozone business confidence, today's figure "clearly highlights the risk that the [ECB's] first rate cut is delayed until after the second quarter,” reckons Jacques Cailloux at Royal Bank of Scotland, and by the end of London trade, the Euro held almost exactly at $1.5800 – the middle of its three-session trading range.

That helped push the Gold Price in Euros as low as €582 per ounce, virtually erasing its gains for 2008 to date.

For British gold buyers, in contrast, the metal closed out the first three months of the year more than 9% higher after the British Pound.

Today in London Northern Rock – the top 5 mortgage lender nationalized after last Sept.'s banking run – revealed a pre-tax loss for 2007 of £167.6 million ($331.8m) and warned that loan defaults are set to rise further.

The British Pound has now dropped 8% of its value against the Euro since the start of January.

In the Gold Market "we are seeing range trading here," believes Frederic Panizzutti, analyst at MKS Finance in Geneva.

"The market is too shy to test $950. Each time we move higher, we see some profit taking.

"We need some new factors in the market to see a break of $950. There is some willingness to move higher, but the market lacks a catalyst to motivate larger players to get back into the market."

The London stock market ended the last day of March more than 11% below its level of New Year's Eve, while the German Dax ended the first quarter fully 19% down.

Hong Kong-listed stocks ended Q1 more than 18% lower this morning, while the index of mainland Chinese "H share" equities closed 25% below New Year's Eve.

Across in New York on Monday, bond prices rose – pushing open-market interest rates lower – after US Treasury secretary Hank Paulson issued a 218-page "blueprint for reform" of US investment regulation.

First begun in March 2007, the review "seeks to trim a hodge-podge collection of overlapping jurisdictions that date back to the Civil War," says the Associated Press, led by reform of US banking oversight that is clearly a quid pro quo for the Federal Reserve's continued cash injections and lending support.

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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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