Gold News

Gold Prices Sink to Late-Jan. Low as Deleveraging "Murders" Commodities, Wall Street Surge Murders T-Bonds

Gold Prices sank 6.5% to dip below $875 per ounce in New York trade on Tuesday, hitting their lowest level since Jan. 22nd.

Base metals fell hard at the London Metal Exchange to lose up to 2.5% for the session, while cotton dropped to a 7-week low.

Crude oil, cocoa and soybeans all continued their four-session plunge, while money poured out of government bonds into Wall Street and European equities, forcing yields more than 19 basis points higher on five-year US Treasuries.

"You're seeing deleveraging taking place in the whole commodity area," reckons Leonard Kaplan of Prospector Asset Management in Illinois, "and it's going to snowball.

"If the Dollar continues to rally, gold and commodities are going to get murdered."

The murder wore on Tuesday as the Euro sank below $1.5600 on the currency markets, down almost 3¢ from Monday's top.

The British Pound also continued to pull back against the Dollar. By the close of trade in London it also stood more than 6% lower against the European single currency at a fresh 11-and-a-half-year low.

The Dollar has now gained almost 18% against gold over the last three weeks, but US Gold Prices still closed London today more than one-third above their level of August, back when the Federal Reserve began slashing Dollar interest rates in response to the global banking crisis.

US interest rates remain well below European rates today, and they are also sharply negative after inflation.
The Federal Reserve's key target has fallen by 300-basis points over
the last nine months.

The cost of living, on the other hand – and even on the official CPI
measure – has risen from 2.5% year-on-year to more than 4.3%.

Even after Tuesday's sell-off in government bonds, 10-year US Treasury yields stood 0.75% below the latest reading of US consumer inflation.

"We're going to see more money going out of commodities and going back into equities to start the quarter," believes Matt Zeman, a metals trader at LaSalle Futures Group in Chicago, speaking to Bloomberg.

"[But] if you see equities make new lows, money will come right back to gold."

The Gold Price in British Pounds today dropped through £445 per ounce, its lowest price since Jan. 22nd.

Measured in Euros, the price of Gold fell to €564 an ounce, a level last seen back in Nov. 2007 that was only just above the big "cathedral top" of May 2006.

Western stock markets meanwhile leapt higher to gain 3% in Frankfurt and Paris and add 2.1% to the S&P in New York on what the Associated Press called "rising hopes that banks slammed by the credit crisis are working through their problems."

Today UBS, formerly the biggest Swiss bank, said it wants to raise $15 billion in a new stock issue after its chairman, Marcel Ospel, quit and the group admitted to a fresh $19 billion write-down of credit-related losses.

UBS admitted an $18 billion write-down in the last quarter of 2007.

Defending his stock from rumors that it's "doing a Bear Stearns", Erin Callan – the chief financial officer at Lehman Brothers – last night announced a $3 billion rights issue.

He also reminded reporters that on top of holding nearly $100bn in cash and near-cash assets, Lehman also has a $200bn line of credit at the US Federal Reserve.

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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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