Gold News

Gold Nears 7th Quarterly Gain Running as Commodities & Forex "Echo 2008", Stocks Drop 11% from March

Gold and Silver ticked higher from yesterday's sell-off early on Wednesday, rising as Asian stocks caught up with Wall Street's sharp losses, but European shares rallied.

Recording an AM London Gold Fix of $1240.50 per ounce, gold stood almost 12% higher in Dollar terms for the second quarter of 2010.

Fixing at $18.74 per ounce today, silver stood 7.0% above the end of March.

New York's S&P 500 stock index ended Tuesday 11% down for the second quarter.

"The yellow metal firmly established itself as a reservable currency in the second quarter," says a note from Japanese metal conglomerate Mitsui's London team, "benefiting greatly as the sovereign debt crisis in Europe came to a head."

Gold has now recorded seven quarterly gains on the run, Mitsui notes, outrunning both Silver (now with six consecutive gains) as well as platinum group metals (breaking their run of 5 quarterly gains with a drop of 6.5%).

Crude oil and base metals today rallied from Tuesday's hard sell-off, but broad commodity indices remained 7% lower for the April-June quarter.

Commodity currencies the Canadian and Aussie Dollars both bounced on the forex market, but held more than 10% lower from the end of the first quarter against the "risk averse" Japanese Yen.

"This is exactly what happened in the last quarter of 2008 following the spread of the banking crisis from the US to Iceland, the UK and Europe," says Simon Derrick at Bank of New York Mellon.

"The recent and marked underperformance of commodities and commodity-based currencies relative to both the Swiss Franc and Japanese Yen could be an early warning signal that sentiment is taking a significant turn for the worse...an echo of the way it did in late 2008."

Bloomberg adds that the Baltic Dry Index of shipping rates – a key indicator of global economic activity – completed its 23rd losing session on Tuesday, matching the streak to mid-August 2008 "and representing a 42% retreat during the current run."

"Gold continues to push towards the $1300 mark which is likely to be hit in the weeks to come," reckons Axel Rudolph, writing his latest technical analysis for Commerzbank clients.

"Only a daily close below the 55-day moving average at 1203.20 would lead us to question our bullish outlook. [Below that] failure at 1196 could indicate the formation of a significant top."

"[Gold] is either building a top, or getting ready for another leg higher," says Scotia Mocatta's daily note, "and we remain bullish with a stop loss at 1223."

"The weekly chart for gold is still nicely bullish," says Phil Smith in Beijing for Reuters Technical, but "volume has been tailing off [in the Gold Futures market], which is consistent with forming another top."

New economic data meantime showed UK consumer confidence falling less than analysts forecast in June, but house prices disappointed the City by showing an average 8.7% year-on-year rise on the Nationwide's index.

Sterling today retreated from yesterday's new 20-month high vs. the Euro, enabling the Gold Price in British Pounds to rally from a 5-week low of £815 an ounce.

In the United States, estate agency RealtyTrac said overnight that 31% of all US home sales were due to foreclosure in the first quarter.

Foreclosed prices undercut non-distressed prices by 27% on average.

"Markets have swung towards fears of a double-dip slowdown, and risk-aversion is palpable," says Morgan Stanley's chief US economist Richard Berners.

"We still see a moderate, sustainable recovery as the most likely outcome. But we also think that new uncertainty around economic policies at home and abroad is creating downside risks to US and global growth."

Over in Frankfurt tomorrow, the European Central Bank will see €442 billion of 12-month "long-term refinancing operations" expire, but analysts remain divided over the likely impact on bank-to-bank liquidity.

Less than €132bn was taken today from the ECB's latest 3-month LTRO, much less than some analysts forecast.

Interbank lending rates, however – known as Libor – leapt once again ahead of Thursday's 12-month expiry, driving the 3-month cost of funds up to a 10-month high of 0.706%.

The Gold Price in Euros ticked above the middle of the €1000-1020 per ounce range it's traded within since June 10th.

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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