Gold News

Gold Recovers 1.1% Dip as Stocks Fall, Dollar Slips Ahead of G7 Crisis Meeting

Gold Prices moved sideways in London trade early Friday, recovering last night's US close near $929 per ounce after a 1.1% fall as finance ministers from the G7 group of seven richest economies met in Washington to discuss the on-going global banking crisis.

"We do not have the luxury of waiting for markets to stabilize before we think about the future," said Ben Bernanke, head of the US Federal Reserve, in a speech on Thursday.

US stock futures pointed sharply lower this morning as European equities dropped 1% on news that General Electric missed first-quarter earnings forecasts by one-sixth.

Now the G7 wants to "boost transparency, strengthen the role of credit rating agencies, and bolster cooperation between regulatory authorities in major countries," according to the Associated Press.

"Because the IMF meeting presents risk," says today's Gold Market note from Manqoba Madinane and Walter de Wet at Standard Bank, "there is potential for a further short-term correction in the metals complex."

"Participants should [also] watch equity market developments closely after US equity markets rebounded yesterday," they add.

"Further gains will signal downside risks to the commodity complex. Reinforcing our view, investment-grade credit spreads [are] indicating short-term stability in US credit markets."

This week the International Monetary Fund (IMF) put the total losses due from the collapse of subprime US mortgage lending at $1 trillion.

Goldman Sachs forecasts total write-downs of $1.2 trillion.

"Further targeted action on a significant scale is needed over a long period of time to restore normality," said Geoffrey Yu of UBS in Zurich to Bloomberg earlier, but "it's hard to imagine coordinated rate cuts or fiscal policies" counters Carl Weinberg, an economist in New York for High Frequency Economics.

Each of the G7 economies finds itself in a "different position" regarding inflation, credit and growth, Weinberg believes. In truth, however, what really separates the G7 economies right now is policy.

One day after the European Central Bank kept its key interest rate on hold, wholesale prices in Germany were today reported 7.1% higher in March from the same month earlier, the worst rate of inflation since 1982.

In the United Kingdom, both import and export prices rose 5.9% during the year-to-Feb. and input-price inflation for UK manufacturers hit a record high above 19% per year said the Office for National Statistics on Thursday.

Yet the Bank of England in London still voted to cut UK interest rates, arguing that the economic downturn its rate-cut seeks to prevent would help pull inflation lower.

Consumer prices in the UK are now suffering the worst run of sustained inflation since the last British recession of 1992. Yesterday's rate cut took the real rate of interest for even basic-rate taxpayers below zero.

It also pushed the Pound to fresh record lows versus the Euro, helping the Gold Price in Sterling back above £470 per ounce.

The Gold Price in Euros was capped this morning below €586 as the US Dollar resumed its slide against all major currencies.

Bond yields ticked lower everywhere outside Japan, meantime, where three-month government bond yields crept to 0.58%, some 8 basis points above the Bank of Japan's key lending rate.

Asian stock markets rose, pushing the Nikkei index almost 3% higher, while base metal and soft commodity prices pulled back.

Crude oil reversed an overnight dip, sending prices the benchmark US oil price – West Texas Intermediate – almost 0.5% higher above $110 per barrel.

"The demand situation is deteriorating all the time," reckons Rowan Menzies at Commodity Warrants in Sydney, Australia. "There is a disconnect between the price of oil right now and what the data is telling us in terms of demand slowing down."

But "for a number of the big, important [commodity] markets, we are still very positive for higher prices to come," says Kevin Norrish, director of commodities research at Barclays Capital, speaking to Bloomberg from Santiago in Chile.

"China and other parts of the world have much more than offset the slowdown that we've seen in the US for industrial metals and other commodities."

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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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