Gold News

Gold "Drags Sideways" as Dollar Falls with Safe-Haven Trades, UK Confirms Price-Deflation

The Gold Price held flat early in London on Tuesday, trading between $920 and $923 an ounce as world stock markets added to their $8.8 trillion gains of the last two months.

"Gold continues to drag sideways," says Phil Smith for Reuters Technical India, "still pushing up against the old resistance level of 935."

"Gold moved up slightly on physical buying below $920," reports Peter Tse at Scotia Mocatta in Hong Kong of Monday's 1.7% drop, speaking to the Reuters newswire.

"But it basically remained in the usual price range of between $915 and $930. Right now gold does not have its own momentum, and follows movements elsewhere."

Today the AM Gold Fix in London was set $8 below Monday's level, down at $921.50 an ounce as Asian stock markets closed 3.0% higher on average.

London and Frankfurt stocks rose more than 1% and 2% by mid-morning respectively, while government bond prices fell – pushing yields higher – even as the UK reported its sharpest deflation since the Great Depression of the 1930s.

Down 1.2% in April from a year before, the Retail Price Index was pulled further into negative territory by a 12% drop in housing costs, led by the Bank of England's record-low cuts to interest rates.

With Bank Rate likely to remain "on hold" at 0.5% – and with the US Dollar continuing to fall on the forex market – the British Pound jumped on the news, reaching its best level in 2009 at $1.5490.

That pushed the Gold Price in Sterling down to a two-week low beneath £596 per ounce.

For European investors now Ready to Buy  Gold, the price gave back the last week's 2.5% gains to trade at €675 an ounce as the single currency reached $1.3650 to the Dollar.

Only the Japanese Yen – "safe haven" winner throughout 2008 – was outpaced by the US currency, slipping to a one-week low of ¥96.60 per Dollar.

"The risk will continue to be that investors will interpret improving month-on-month data more bullishly than is really justified," writes CLSA analyst Christopher Wood in his respected Fear & Greed client note.

"[The] fundamental view remains that growth will disappoint in the US...[and] the inevitable long-term consequence of the reluctance to allow [banking] failure will be the discrediting of the fiat paper currency system as public sector balance sheets are finally totally discredited along with so called government guarantees."

"Investors should take a second look at Gold Bullion," says Kim Inglis, an investment advisor with Canaccord Capital, writing in Canada's Financial Post today.

"As proven in 2008, bullion offers protection during uncertain economic times. Confidence in paper money and the US Dollar as a global reserve currency has dwindled, debt has risen to exceptionally high levels, and investment demand for gold has increased.

"In these conditions, gold should continue to outperform."

Yesterday the SPDR Gold Trust – the world's largest Gold ETF fund – dropped 1.5% of its value during New York dealing. But it saw net inflows of $91.5 million according to the Wall Street Journal, topping its list of "Buying on Weakness".

The stock of Gold Bullion held in trust to back SPDR shares remained unchanged at 1,105 tonnes – virtually unchanged from this time in April.

"The Gold Price is a very useful indicator of liquidity," says Steven Barrow in his forex comment for Standard Bank today, "and in turn it can be a useful guide to future deflationary – and inflationary – pressure.

"The sharp run-up in Gold Prices from 2002 to 2007 was reflected in far more asset price inflation than goods price inflation. However, we can't easily divorce one from the other [and the recent rebound in gold] does make us feel reasonably comfortable that the longer-term danger to the global economy is inflation, not deflation."

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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