Gold News

Gold Slips as Oil Falls Despite Turkish Action in Iraq; US Futures Drop on Housing Woes

Gold Prices slipped throughout the Asian and early European sessions on Wednesday, dropping nearly $5 per ounce from last night's US close before bouncing off a two-day low of $755 at midday in London.

European shares ticked 0.3% higher. Japanese stocks ended the day 0.6% lower on the Nikkei index.

Crude oil prices meantime dropped below $85 per barrel, despite claims that Turkish troops crossed the Iraqi border overnight to attack Kurdish separatists near Northern Iraq's crucial oil-fields.

"These military operations will continue," reckons one risk analyst in London. "The government really needs to do something more substantial [after the PKK killed 12 Turkish troops on Sunday] to satisfy public opinion."

In the financial markets, and "despite increased risk appetite, underlying tensions linger," says Standard Bank in its Gold-Market note today, "anchored by the uncertain state of the US economy.

"With a relatively quiet week on the data front, and a Fed rate decision due next week, tensions are unlikely to settle any time soon."

Yesterday saw the Richmond Fed's monthly manufacturing index – based on shipment data, new orders, backlogs and inventories – drop to minus 5 for October, down sharply from last month's reading of 14. Wall Street analysts had forecasts plus 8.

The ABC Consumer Confidence index also showed a mark decline, helping to support bond prices as traders looked for further interest-rate cuts when the Federal Reserve meets next Wednesday (Oct. 31).

Today's US open will bring existing home sales numbers for Sept. – set to reach a 6-year low according to Wall Street consensus. S&P futures slumped this morning on reports that Merrill Lynch, the world's largest brokerage firm, may have to re-state its third quarter earnings, driven by losses on subprime mortgage investments.

Citing "outside sources" the Wall Street Journal says the $5 billion write-down announced on Oct. 5th will be extended by $2bn. The New York Times puts the extra losses at $2.5bn.

The world's biggest banks lost more than $20 billion between them on mortgage-related products during the June-Sept. period.

On the currency markets this morning the Merrill's rumor was outweighed by much weaker than expected European manufacturing data that sent the Euro 0.8¢ lower in early trade.

Pushed back below $1.4200, the single currency's sudden dip helped the Gold Price in Euros recover €532 per ounce.

For British investors wanting to Buy Gold Today, spot bullion prices ticked down to £368 as the Pound rose steadily, breaking above $2.0500 once again.

The drop in crude oil prices, down to a 10-day low, came after Petrologistics – a consultancy that tracks the movement of tankers worldwide – said the Opec oil cartel seems to have increased its production.

Opec had previously agreed to raise output limits from November.

Wheat prices also fell overnight, dropping 1% on news that Pakistan – the world's sixth-largest consumer according to Bloomberg data – will enjoy a record harvest for the second year running in 2007.

Russia is also expected to boost its wheat exports, and "because of current higher prices, we may see farmers plant more," reckons Toshimitsu Kawanabe at Taiheiyo Bussan in Tokyo.

In the Asian Gold Market, demand in India slowed today according to a Reuters report.

"People are now sitting tight," the newswire quotes one Mumbai bank dealer. But "when there are dips they will buy.

"They should come in to buy at 9,500-9,600 Rupees" per 10 grams, he believes.

Local Gold Prices in India – the world's hungriest market for physical gold – are now just below 10,000 Rupees per 10 grams. They have risen by 11% in the last 12 months.

Gold demand among Indian consumers remains strong, however, despite these "soaring gold prices" says The Post in Lahore.

"The buying pressure during post-Eid days, which mark the start of what is widely known as the season of marriages shows that people are still willing to don gold jewelry," the paper quotes a Punjab gold dealer.

"The trend is not only prevalent in brides-to-be. Even their mothers and sisters want gold."

Meantime in the United Arab Emirates, gold imports into Dubai between June and Sept. rose by 55% from a year earlier, said the Dubai Multi Commodities Centre (DMCC) today.

Dubai's gold dealers imported some 174 tonnes of bullion during the third quarter, nearly half-as-much again by weight as they imported in Q3 '06.

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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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