Gold News

Gold Bounces from 4-Session Low as Euro Stocks Fall on Industrial Data; Inflation Urges New Middle Eastern Gold Buying

Gold Prices bounced $8.50 from a four-session low early in London on Wednesday, turning higher from $897.25 per ounce as European stock markets slipped on news that Eurozone industrial output fell in December.

US crude oil futures ticked higher above $92 per barrel, while copper prices fell at the London Metal Exchange – alongside zinc and aluminum – to cap a five-day winning run.

Wheat fell back from its sharpest two-day gains since 2003. Soybean and palm oil hit new all-time highs at the Dalian exchange in China.

"Subject to developments in the oil price and the US Dollar," says Wolfgang Wrzesniok-Rossbach for Heraeus, the German refining group, "we do not rule out [the possibility] that gold has seen its highs for the time being.

"The failed attempt on Monday to reach the most recent peak again could disenchant investors and initially lead to further profit-taking."

But while G7 politicians urge gold sales by the International Monetary Fund (IMF) – and a leftist candidate for the Economic Ministry in Hesse, Germany, calls for the Bundesbank to follow – "private investors continue to remain on the other side," Wrzesniok-Rossbach adds.

"Demand for investment-gold remained robust this week [despite] more and more profit-taking from private investors happy to book gains at these levels."

Gold futures traded today at the Tocom in Tokyo – where commodity funds fell by 3% in Jan., losing value for the fifth month running – dropped 2.6% to equal $902.85 per ounce for Dec. '08 delivery.

Recording an AM Fix in London of $905.75 per ounce – some 1.6% below Tuesday morning's Fix – physical Gold also lost 2.4% against the Pound Sterling, which hit a one-week high vs. the Dollar despite news that growth in UK earnings has slowed below inflation.

In the year-to-Dec. average UK earnings rose by 3.8% including bonuses, down from Nov.'s 4.0% rate and beneath the 4.1% increase in retail prices reported yesterday.

Today brings US retail sales figures for Jan. – expected to show a 0.2% decline, plus the latest US mortgage application data. The default rate on all existing US mortgages has now reached 7.3%, says the Mortgage Bankers Association, the highest level on record.

This afternoon in Washington, President Bush will sign a $168 billion tax-rebate bill, hoping to stop the current slowdown from becoming a genuine deflationary slump amid a surge in global inflation.

"It certainly will be possible for the Gold Price to spike still higher," reckons David Moore at the Commonwealth Bank of Australia in Sydney.

"I think it's premature to say that we've seen the peak. There's still some investor interest in gold."

The latest data on Gold Market futures & options show that, overall, bullish betting shrank 1.3% in the week-ending Feb. 5th. The world's gold-backed trust funds meantime grew by 0.3% – and that makes the volume of metal represented by the ETFs greater than the net long US derivatives position, says Mitsui today.

The switch indicates "how important these investment vehicles are in the sustainability of the gold run," the metals dealer adds. (But wouldn't you rather actually own real gold instead? Get the facts in this Free Gold Report here...)

Meantime in the market for real physical Gold Bullion today, the early drop below $900 per ounce encouraged inventory buying from Asian jewelers, reports Reuters.

India's gold imports slumped by 95% in January from the same month in 2007, the Bombay Bullion Association said Tuesday. But while "gold buyers may take long time to adjust to the high and volatile prices," says Rajiv Nair, vice president of Vision Commodities in Dubai, "by the second half of 2008, demand will pick up."

In the fast-growing Middle East, meantime, "jewelry demand is likely to remain stable, but we are now seeing a surge in investment demand due to growing apprehension in the global financial markets," said Ian MacDonald, head of gold and precious metals at the state-owned Dubai Multi Commodities Centre, to the Kuwait Times overnight.

Inflation in Saudi Arabia, the largest economy in the Middle East, rose to 4.1% last year from 2.2% in 2006, driven by a 7% rise in food prices and an 8% increase in housing costs.

Gold demand across the member states of the Gulf Cooperation Council (GCC) rose by one-fifth in 2007 to reach 260 tonnes according to the World Gold Council's local office.

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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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