Gold News

Gold Prices Show No "Give" as World Stock Markets Fall Despite Fed's Latest Rate Cut

Gold Prices moved sideways early Thursday, holding between $920 and $927 per ounce as global stock markets fell despite yesterday's fresh injection of cheap money from the US Federal Reserve.

"The character of the bull market in gold seems to be changing," says Richard Russell, veteran analyst and author of the widely-respected Dow Theory Letter since 1958. "The change is that I don't sense any 'give' in the metal.

"It's like some strange, invisible power is forcing the metal higher.

"Can this steady, almost eerie rise continue? How could gold, how could any item, rise from $250 to over $930 without attracting intense interest from the public? Damned if I know, but I can tell you this – somewhere ahead, rising gold will attract the interest of the [wider] public."

Asian-Pacific stock markets today managed to recover an early dip to close Tokyo 1.6% higher. But European equities sank at the open, trading down to a 1.8% loss by the AM Gold Fix in London – set exactly at yesterday morning's price of $923.75 per ounce.

The Gold Price in Euros slipped to a four-session low of €619.65 as the single currency climbed back above $1.4880 on the foreign exchange market.

The Pound Sterling also recovered the highs it had briefly hit after the US Fed's 0.5% rate cut on Wednesday. But that failed to stop the Gold Price in British Pounds rising to £467 per ounce by lunchtime in London, just shy of a new record high.

The FTSE 100 index of blue-chip UK stocks meantime slid 1.7% to record its worst-ever performance for the month of January.

"The problem for [equity] investors is that, while they probably felt a bottom, if not THE bottom, had been touched on Monday or Tuesday last week, there's no impetus to buy when the outlook is so cloudy," says Jeremy Batstone-Carr, head of research at Charles Stanley stockbrokers.

"We're going to have a torrid few months ahead. There's no doubt about it."

A slew of bad news followed the poor US close on Wednesday, pushing Wall Street futures lower again today.

Standard & Poor's said it's reviewing the credit ratings of $534 billion in subprime-related bonds. It also said credit losses at the world's major banks may total more than $265 billion all told.

Fitch then downgraded its rating of the main bond insurance unit at Financial Guaranty Insurance Company (FGIC). And this morning the world's largest bond-insurance firm, MBIA, reported its biggest-ever quarterly loss at $18.61 per share.

The stock closed New York last night worth $13.96.

"In the absence of a credible bailout plan, I think investors and issuers need to assume that MBIA, along with all of the other companies, will face continuing, worsening downgrade pressure all year," reckons Matt Fabian of Municipal Market Advisors in Concord, Massachusetts.

Merrill Lynch’s new CEO John Thain told the Financial Times yesterday that an "industry-wide" bail-out for the bond insurance firms is next to impossible.

"The prospects are still very bullish for the precious metals," says today's Gold Market note from Mitsui in Sydney, "but after so much anticipation of the Fed's latest rate decision – and the premium added to the market from the recent difficulties in South Africa – it is possible we will see some further profit taking and a correction in the short term."

Harmony Gold – the world's fifth-largest gold miner – restarted production at most of its operations today following the industry-wide shutdown last week, caused by South Africa's ongoing power shortages.

"If the lights come on, then your telephone or internet go out," said Julian Phillips of the GoldForecaster.com to BullionVault by phone this morning.

"South Africa's gold miners can't rely on the government's energy provider to supply power. They must build and run their own supplies – but of course that will add massively to their costs in the short run."

The state-owned utility Eskom has promised to restore 90% of the nation's capacity by the weekend. But it desperately needs 15 million tonnes of extra coal supplies over the next 90 days, according to Zoli Diliza, head of South Africa's Chamber of Mines.

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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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