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Gold Prices Slide as Dollar & Stocks Sink on Weak US Inflation & Investment Flow Data

Gold Prices fell hard at the start of New York trading on Friday, dropping to this week's early lows for Dollar buyers – and hitting the lowest levels since early May for Euro, Sterling and Aussie gold investors – while stock markets sank on weak US data.

Commodity prices slipped, with Silver also falling toward the week's early low of $17.80 an ounce.

The Dow Jones index dropped 1.0% at the opening.

"With [Thurs] afternoon's US Dollar weakness," say bullion bank Scotia Mocatta's analysts in a note, "gold bulls would have expected a decent move up to the $1225 technical pivot.

"On the bright side for gold, this [was] the third consecutive close above $1200."

Gold Prices today slid to $1190 an ounce, while the US Dollar rallied against the British Pound but slipped to a near 10-week low vs. the Euro and sank to fresh 2010 lows vs. the Japanese Yen at ¥86.50.

Japanese stocks earlier closed the day sharply lower as the Yen rose, heading into the long Sea Day weekend some 2.9% down.

Tokyo Gold Futures also fell, slipping 0.5% to ¥3,397 per gram.

Physical Gold Trading in Asia was "very quiet" today according to one Hong Kong dealer, but "Investors don't know what to do after selling gold," says Ronald Leung, head of Lee Cheong Gold Dealers, speaking to Reuters.

"They can't really put the money into other markets. So they are still holding certain amounts of gold in their portfolios."

Noting the sharp drop in Euro Gold Prices that actually began on July 1st, "Investors' trust in the Euro currency is back," says Bayram Dincer, analyst at the Liechtenstein royal family's LGT Capital Management.

"Previous gold safe-haven buyers, mostly Europeans due to Euro fears, are reconsidering their Gold Investment as prices in Euro terms are declining."

The Gold Price in Euros has declined in every summer since the single currency was launched a decade ago, BullionVault analysis shows, rising to hit new highs for the year between Oct. and Dec. in 2001, 2005, 2007, 2008 and 2009.

"The unwinding of the Euro gold trade" – a position adopted by an increasing number of non-EU institutions and funds as the price gained 22% in the first half of 2010 – "effectively means buying-Euro and selling-gold," says Leon Westgate for Standard Bank today.

"The weakness [is] spilling over into the rest of the precious metals complex and explains why a weaker Dollar has had not impact on prices."

Following Wednesday's "hardly dazzling" auction of Greek government debt, as The Economist puts it, Chinese premier Wen Jiabao said Friday that Beijing will continue to buy Eurozone financial assets, a promise described as "an important signal" by his guest, German chancellor Angela Merkel.

Returning this week to the bond market for the first time since the EU and International Monetary Fund agreed a €110bn rescue facility, Athens raised €1.6bn in six-month bills, paying a yield of 4.65%.

That compares with 6-month German Bund yields of 0.47%.

Portugal yesterday raised €1.7bn in a mix of 2- and 9-year debt, paying more than 2.4 and 2.7 percentage points respectively above comparable German debt.

Spain meantime sold €3bn in 15-year bonds, paying a yield of 5.12%. Comparable Bunds pay 2.93%. Spain's previous 15-year auction in late April required a yield of just 4.43%.

"Appetite for Spanish paper is alive," says one fixed-income strategist, quoted by Bloomberg.

Ahead of next Friday's "stress test" results for 91 European banks, meantime "I get the feeling that what will come out will be rather reassuring," said IMF chief Dominique Strauss-Kahn on French TV earlier.

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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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