Gold News

Gold Down 6.7% for Jan., Worst Month Since Dec. '09 as US Inflation-Rate Doubles, "Macro Cues Unchanged"

Gold Bullion prices failed to rally from last night's tumble in Asian and London trade on Friday, extending the month's sharp losses and hitting to four-month lows in the US Dollar and six-month lows against the Swiss Franc and "commodity currency" Aussie and Canadian Dollars.

London shares extended a fall in Asian stock markets, and major-economy government bonds ticked lower.

Broad commodity markets were little changed, but the Silver Price fell to its lowest level in 10 weeks at $26.45 per ounce.

"The effect of waning investor demand [has been] aggravated by the absence of physical buying" in Asia, says today's note from Standard Bank's London commodity team.

Open interest in US Gold Futures shrank by 14% on Tuesday this week, as traders closed more than 81,000 contracts ahead of Jan.'s month-end expiry.

The giant SPDR Gold Trust shed another 3 tonnes of bullion on Thursday, taking this month's redemption from the world's No.1 Gold ETF to 4.2% by weight – its sharpest contraction since just before Lehman Bros. failed in Sept. 2008.

"[This] reduced demand for safe-haven assets [comes] on the prospect of a strengthening global economy," says Standard.

But after Thursday showed a sharp rise in new US jobless claims, however – plus a drop in Durable Goods orders – new GDP data further disappointed analysts today with 3.2% growth for the end of 2010.

Domestic US price inflation more than doubled from Sept. to Dec., said the Bureau of Economic Analysis. So too did Real Personal Consumption Expenditures, rose 4.4% from 12 months before.

US interest rates have now been on hold between 0.25% and zero since Dec. 2008.

"Everyone focuses on what the Fed is doing, but for the gold market it is also important what the Chinese and Indian central banks are doing," notes French bank – and London bullion dealer – Natixis in its latest commodities analysis.

"Monetary tightening to combat inflation is weighing on Asian shares," said investment strategist Shane Oliver at the $93 billion AMP in Sydney to Reuters overnight.

New property tax laws in Shanghai and Chongqing came into force today, costing second-home owners up to 1.4% by value per year.

"China buying for Lunar New Year and bargain hunting from other areas in Asia was slow" on Friday says metals conglomerate Mitsubishi's dealing-desk in Tokyo.

"With Chinese New Year coming up next week, physical demand for platinum [in particular] has dried up in the past two days," says a Hong Kong dealer.

Losing 6.7% from the end of Dec., the Gold Price has now suffered its sharpest month-on-month drop since Dec. 2009 for Dollar investors, and the sharpest drop in Sterling and Euros since July 2010.

"The macro cues for owning gold remain largely unchanged," says another London dealer, "but outside of another stumble from Europe they are still a long ways [from] providing a bid in the short term."

Analysis published this week by Citigroup shows the Central Bank of Ireland propping up Irish banks with €49 billion of "emergency liquidity assistance".

If accounted as a guarantee of the Irish state, that sum would take Dublin's true debt-to-GDP ratio from a record 114% up to 145%.

"Should the sovereign be unable to bail out its central bank...a financial rescue by the rest of the Eurosystem [would mean] the national central bank would have created 'money' independently of the European Central Bank."

Calling such an outcome "a challenge to the very essence of monetary union", Citi likens it to the Rouble zone which followed the collapse of the Soviet Union and swiftly sank into "a series of chaotic hyperinflations".

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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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