Gold News

Gold prices sink on strong US data

Spot gold prices sank in the first-half of US trade Thursday, driven lower by a bounce in the Dollar due to stronger-than-expected economic data.

A sharp rise in jobless claims was far outweighed by a leap in sales of new homes reported for April.

Up at 981,000 the new home sales figure beat forecasts by more than one seventh. Month-on-month the number rose 16%.

"The housing data is giving the Dollar a bit of a boost," said Robert Fullem at Bank of Tokyo-Mitsubishi in New York.

"Recession is pretty much out of the picture" – and with it, the prospect of lower Fed rates is delayed yet again. (Why does gold respond to Fed rates? Find out here...)

By close-of-play in London, that pushed spot gold prices down $9 per ounce at $654.

Gold priced in Sterling sank below £330 for the first time in 11 weeks.

Versus the Euro gold prices fell to €487 – the lowest level since 13 March.

"Gold seems to be struggling and the technical picture has weakened in the past couple of weeks," reckoned William O'Neill, a partner at Logic Advisors in New Jersey.

"A lack of alternative asset demand for gold has been a negative."

Dollar alternatives also suffered in the currency markets on Thursday.

The Euro dropped back below $1.3420. The British Pound dropped back to $1.9830.

But it was gold that suffered most as the US Dollar shot higher.

"The spot gold market has fallen through key support at $665," noted Tom Tragett in the Forex Profit Alert earlier.

"Metals prices elsewhere are falling sharply. The technical picture shows a double top in place above $685. There's a possible move towards the 200-day moving average now at $635.20."

Outside the gold market, US stocks also fell sharply – down 1% by the time London closed – as hopes of lower Fed interest rates were dashed.

"The need for the Fed to potentially cut rates later this year might be lessened by the fact that growth is still present in the overall economy," said Robert Pavlik, chief investment officer of $325 million at Oaktree in New York.

Two stocks fell for every share that advanced, reports Bloomberg. Around 523 million shares changed hands at the NYSE by midday, nearly one-fifth more than this time last week.

Both London and New York will be closed for national holidays on Monday.

Fears of higher interest rates bursting the bubble in China's stock markets also led investors to close open positions before the long three-day weekend.

"A correction is more than overdue," added another professional investor. "A lot of smart investors are taking some profits".

But shouldn't gold rise when the stock market falls? The famous "safe haven" has now failed four times in 2007 to deliver the non-correlation that historians expect.

To get the real story about what's been driving gold higher – and now lower – with stocks, click here and keep reading...

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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