Gold News

Gold Price Hits "Physical Selling" as Diwali Begins; "Basic Strength Intact" on Dollar Weakness, Risk of Sterling Crisis

The Gold Price ticked lower in early London trading on Friday, slipping through yesterday's low of $1045 per ounce to stand unchanged on the week.

Dropping 2.5% from Wednesday's new record high for Dollar investors, the Gold Price headed towards the weekend lower against all other major currencies bar the Japanese Yen.

The Gold Price in Sterling – down at an 8-session low of £640 an ounce – stood more than 5% beneath Tuesday's 7-month high by lunchtime in London.

"Bearishness creeping into the daily chart," says Phil Smith's analysis for Reuters Technical India. "[Gold] looks vulnerable to a further correction, particularly if the oil price corrects as well.

"Volume [in US Gold Futures] has also come off a bit – another factor for the downside."

With the Diwali festival of lights celebrated across the Hindu world tomorrow, "Some Indian buying has picked up," reports London dealer Mitsui, "but we expect this to retreat again fairly quickly.

"Perhaps that the supply side is winning the battle at the moment, with physical sales appearing in Asia today – the third day running we have seen this."

"Selling in the physical gold market is adding to resistance," agrees Walter de Wet at Standard Bank. "However, we still favour Buying Gold dips. Gold support is at $1402 and $1035."

Broader financial markets also held flat Friday morning, capping European stocks with a 2% gain for the week and keeping 10-year US Treasury bond yields at 3.45%.

The major commodity-price indices slipped from fresh 12-month highs. Crude oil lost 50¢ from Thursday's new one-year high above $77 per barrel.

"People seem to be getting tired of Buying Gold," said a Tokyo analyst to Reuters this morning. "[But] the Dollar's outlook is weak, so gold's basic strength will be kept intact."

"It's all about the Dollar still," agrees Jon Nadler of Canadian refining group Kitco, "and will remain the case for the foreseeable future."

Noting that Thursday's drop was the first move lower in 10 trading sessions, Scotia Mocatta's technical analysts point to the "Doji" warning in Wednesday's action – where prices opened and ended the day virtually unchanged after a run of strong gains.

"With [Thursday's] lower close, the reversal is confirmed. We expect to see liquidation of long gold positions over the coming days. Initial pull back target seen at former high of $1024."

Here in London, meantime – where a Bank of England policy-maker said this week that it's "uncertain" about extending its Quantitative Easing program of buying government debt with newly created money – the central bank was offered sharply conflicting advice from two leading private economists.

"Sterling is clearly a currency that's been seriously's extremely weak," said HSBC chief economist Stephen King in an interview.

"There's always a risk of a Sterling crisis...The problem with admitting that [the central bank is] happy about the Pound falling it is that a small fall can turn into a very large fall.

"There's definitely a danger there."

But Roger Bootle – chief economist at Deloitte and author in the late 1990s of The Death of Inflation – says the Bank of England should push its money-creation scheme "as far as it takes" to avoid a deflationary recession.

Citing a further 20% drop in house prices, the Bank "will have to go a lot further" in buying government bonds to squash interest rates and boost the money supply, Bootle believes.

"In the first instance, they should be prepared to go another £50 billion, and maybe even another £100 billion...but the point is being prepared to go as far as it takes."

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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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