Gold News

Gold Prices Volatile After Last Week's 4.5% Plunge, But Chinese Consumers Buying as US Seniors Sell to Raise Cash

Spot Gold Prices whip-sawed in a volatile $8 range early Monday, twice spiking above $923 before sliding back below last week's close.

At the AM Fix in London today Gold recorded a price of $915.75 per ounce.

"Gold [in Dollars] is really struggling to make much headway after Friday's [4.5%] fall," noted Tom Kendall of Mitsubishi Corp. to Reuters earlier. "It wouldn't be a surprise to see a test of the downside support around $905."

Asian stock markets meantime rose 2.6% on average, taking Hong Kong to an 11-week high, while crude oil made new all-time records above $117 per barrel.

But European equities ticked more than 1% lower – hurt by Bank of America revealing a 77% drop in net earnings – as the region's single currency rose back above $1.59 against the US Dollar.

The British Pound sank 1.5% to a new record low vs. the Euro as the Bank of England formally announced its plan to tackle "decisively" the shut-down in London's interbank money market.

"Higher crude oil prices should lift near-term global inflation expectations and boost fund flows into precious metals," says today's Gold Market note from Standard Bank in Johannesburg.

"However, high investor risk aversion due to excess volatility may limit the pace at which funds flow into precious metals."

By lunchtime in London today the Gold Price in Euros had drifted down to an 8-session low beneath €579 per ounce.

For British investors wanting to Buy Gold today the price recovered one-quarter of Friday's dramatic 4.5% plunge, trading up to £463 per ounce as the Pound continued its 7-month slide on the currency markets.

Starting today and running for up to three years, the Bank of England will lend short-term UK government bonds to banks stuck with "high quality mortgage-backed and other securities" that they just cannot sell from their balance sheets.

Given the "costly nature" of this Special Liquidity Scheme however, "it will arguably be more an opportunity for banks to recapitalize rather than free up the current logjam in the [UK] mortgage market," says Richard McGuire at RBC Capital Markets.

The Debt Management Office – already scheduled to issue £80 million ($158m) in new government debt between now and April 2009 – will supply the Bank of England with £50m ($99m) in short-term bills, ready to lend out.

Yet despite this looming surge in supply, UK gilt prices moved higher this morning, pushing interest rates lower.

US Treasury bond prices also rose, pushing the two-year three basis points lower to 2.11%.

Consumer price inflation in the United States was last pegged at 4.3% per year.

Ahead of this week's flood of US corporate earnings reports, the National Association for Business Economics says the short-term outlook for the US economy is "notably downbeat".

"For the first time in five years," confirmed Ken Simonson, chief economist for Associated General Contractors of America, "reports of falling profit margins outnumbered reports of rising margins in the first quarter of 2008."

Demand levels and new orders reported by NABE members grew more slowly than at any time since the 2001 recession.

"Seniors are coming in on fixed budgets who inherited jewelry," says Tony Cecena, a jeweler in Belleville, Illinois who tells BND.com of a sharp rise in people selling jewelry to raise cash.

"This is a good opportunity for them to be able to make money for their pharmaceuticals. It's been really interesting."

"People have other bills that they want to take care of," agrees Terry Beigert, another jeweler who's busy buying rings, bracelets, necklaces and watches from cash-strapped US consumers.

Meantime in China, in contrast, the World Gold Council points to sharp growth in Gold Investment demand amongst householders.

Disposable income in China's main urban areas rose 17.2% last year, the WGC notes. Retail gold demand rose almost 60% to 24 tonnes.

"The stock market is not as good as before and people do not feel safe parking all their savings in banks," according to one analyst at China International Futures in Shenzhen.

"So they tend to Buy Gold as a means to hedge inflationary risks."

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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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