Gold News

Gold Slumps into London Close Despite Shock US Data; Stocks Sharply Lower on Surging Inflation

Gold Prices spiked out of a tight $4 range to reach a three-day high of $915 per ounce as New York opened Friday, while world stock markets sank on shockingly poor US data.

But the Gold Market then slumped below $900 per ounce, falling towards the week's low, after FGIC – one of the world's biggest "monoline" bond insurers – announced it will split itself in two after losing its crucial triple-A credit rating on Thursday. (What do bond insurers have to do with gold, and can FGIC turn this market around? Follow the Bail-Out Trail here...)

The New York Fed had earlier said on Friday that growth in US manufacturing has collapsed this month, giving a reading on the NY Fed's index of -11.72 against the +7.30 expected by Wall Street.

But while output is plunging, input price inflation soared at a record 13.7% in the year to January, the Labor Dept. added.

In particular, import prices from China posted their biggest monthly and annual increases on record, notes Thomson AFX – and with Ben Bernanke at the Federal Reserve promising to slash interest rates further as he attempts to stall recession, the Gold Price only looks set to keep rising as savers and investors get squeezed out of the Dollar. (Find out What's Driving this Bull Market in Gold here...)

European stock markets had already fallen more than 2% on news that Eurozone exports reversed a €2.0 billion trade surplus in Jan. to show a €2.1bn deficit in Dec.

"The impact of the strong Euro has yet to be fully felt," reckons Martin van Vliet, senior economist at ING. "Demand in key export markets such as the UK and the US is set to weaken further."

Also in the European markets, Citigroup claimed that Swiss wealth-management giant UBS may have to write down a further 20 billion Swiss Francs ($18.1bn) in fresh credit-market losses this year, helping knock UBS fully 4.5% lower at the Virt-X in Zurich today.

The Euro climbed to reach new 10-day highs above $1.4660, however, capping the Gold Price in Euros below €623 as the Frankfurt close drew near.

For British investors wanting to Buy Gold today, the price rose above £466 per ounce as the Pound fell on news that UK consumers ran up a near-record £32.3 billion on their credit cards ($63.7bn) in the last three months of 2007.

"Christmas was put on credit," says today's Times. "Debt charities said they had been experiencing record number of calls from people worried about their debts since mid-January."

But it's the fast-sinking US economy that really drove the slide in stocks – and the resulting slide in bond yields – on Friday.

"Clearly the [US] economy is on the edge of recession," said Alan Greenspan, former Fed chairman – and the man credited by many with creating the bubble in debt that's now exploding – on Thursday.

"We have a long way to go" before real estate prices hit bottom, the Maestro told an energy conference. His successor, Ben Bernanke, was meantime knocking 175 points off the Dow by promising even further cuts in the cost of Dollars.

High oil prices are also acting to drag on the economy, Greenspan added, calling them "a burden" and concluding that the US economy is now "growing at stall speed."

Crude oil prices today rose back above $96 per barrel for the first time in five weeks on news that China's oil imports grew by 2% in January, defying expectations that a US slowdown would immediately dent Chinese energy demand or its impact on inflation.

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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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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