Gold News

Gold Investment Shrinks, Price Hits Fresh 3-Month Lows, as Euro-Debt Draws Strong Demand, Bloomberg Users Call Gold "a Bubble"

The Gold Price fell to new multi-month lows against all major currencies on Tuesday morning, dropping to $1325 per ounce as "capitulation and panic" hit Asian investment traders, according to one Hong Kong dealer.

Tokyo equities rose after the Bank of Japan held interest rates below 0.1%, but other Asian stock markets fell and European shares also ticked lower.

Versus a rising Dollar, Brent crude oil lost 1.2% in London trade, copper prices dropped 2.5%, and Silver Bullion lost 5.0% from Monday's high to trade at an 8-week low of $26.60 per ounce.

"Recent positive sentiment regarding Eurozone peripheries [has] weighed on precious metals prices and discouraged safe-haven buyers," reckons KBC Bank in a note.

The Eurozone's new "stabilization fund" today drew €43 billion of demand for just €5bn-worth of bonds, issued to help fund Ireland's bail-out.

Many analysts cited strong bids from Asian central-bank and sovereign-wealth fund managers. A new issue of Spanish government debt also found good demand, with the interest-rate charged sliding from 1.8% to 1.0% on 3-month bills.

"Gold is in a bubble" reckon more than half the 1,000 Bloomberg data and news-feed terminal users responding to the news-wire's latest quarterly survey.

Nearly twice-as-many respondents say they will cut gold positions by July as say they will increase them. The SPDR Gold ETF – the world's largest exchange-traded gold trust – yesterday shed 10 of the 21 tonnes it regained on Friday, slipping back to 1260 tonnes of Gold Bullion, held at HSBC Bank to back the value of its shares.

All told, the volume of Gold Investment made through formal, regulated exchanges shrank by 1.3% in the week-to-last-Tuesday, says London's VM Group in its latest Precious Metals Weekly for ABN Amro Bank.

"The decline was led" by a near-7% drop in the net bullish position held by [institutional] Large Speculators," says VM, "which hit its lowest since July 2009."

In silver, in contrast, Large Speculators such as hedge funds and other professional investors have actually grown their net bullishness in the futures market. But that's been "more than offset...by a large decline" in Small Speculator positions held by private individuals.

Today in India – the world's No.1 physical gold-consumer market – "Some suppliers are now charging premiums of $2 [per ounce above the London benchmark] as there is a big fight in getting supplies," a bank dealer in Mumbai told Reuters overnight.

"If we place an order now, we get delivery only in 3-4 days."

Currently 5.9% lower from the last day of 2010, the Gold Price in Dollars has suffered equal or sharper 3-week losses in 17 of the last 55 months.

"The economy will probably emerge from its slump soon and return to a moderate recovery path," said Bank of Japan governor Masaaki Shirakawa at his monthly press conference on Tuesday morning.

Pressing ahead with another $60 billion-worth of "quantitative easing" asset purchases, the Bank of Japan has now held its key lending rate at or below 0.50% since March 2001.

Measured in Japanese Yen, annual economic output has shrunk by more than 4% in the last 10 years.

New UK data today showed the British economy shrinking by 0.5% in the last 3 months of 2010, defying analyst forecasts of 0.5% growth.

The Pound slumped 2.5¢ on the news, reversing the last two weeks' gains to hit $1.5750.

Gold priced in Sterling rose from a fresh 3-month low to trade above £842 per ounce.

The Gold Price in Euros continued to fall, in contrast, touching new 12-week lows beneath €31,250 per kilo.

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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