Spot gold prices slipped after the London close on Tuesday, dipping towards the day's low just above $670 per ounce on interest-rate news from the US Federal Reserve – and data regarding gold-sales by the central bank of Spain.
"Central bank gold sales have been holding gold back," said Frank Lesh, a trader with FuturePath in Chicago, to Bloomberg earlier after the Bank of Spain said it sold a further 28 tonnes of its physical gold bullion reserves last week.
"What a better time for central banks to sell than on the rallies," noted Lesh.
The Banca d'Espana had already dumped 80 tonnes of gold bullion during the previous two months, driven by the need to raise cash in the face Spain's ballooning trade deficit – now worth more than 9.5% of its annual economy.
The reasons for Spain's gold sales – and their implications for the fate of the Euro – have so far failed to draw money out of the European single currency and into gold bullion.
But it's clear from gold's steady progress above May's monthly average of $666 per ounce that investors wanting to buy gold today are more than happy to take all the Spanish gold that the Banca d'Espana has to offer.
"The market seems to be more fazed by central-bank selling than central-bank gold buying," reckons Robin Bhar, an analyst with UBS in London.
John Reade, head of metals at UBS, added today that the Bank of Spain may have been given the 100-tonne sales quota not used by the German Bundesbank for this year.
USB now believes that sales under the Central Bank Gold Agreement could reach 500 tonnes during the 12 months to Sept. – the upper limit agreed by the major European central banks who signed up to the deal in 2004.
"Central bank gold sales always seem to influence market sentiment by more than they should," said Reade earlier.
On Wall Street, meantime, a speech by US Federal Reserve chairman Ben Bernanke spooked investors into selling both stocks and bonds.
By the time London closed for business, the S&P index traded 0.7% lower.
US Treasury prices also fell, pushing the yield on two-year notes up to 5% – a nine-month high – after bond traders picked through Bernanke's comments on "resource utilization".
Speaking via satellite to an International Monetary Fund meeting in Cape Town, South Africa, Bernanke said that "although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside.
In plain English, Bernanke confirmed the view of US interest-rate futures traded in Chicago. They now put the chance of a hike by the Federal Reserve at 41%.
Just last month, those same Chicago futures put the chance of a cut in US interest rates at more than 80%. (Why should interest rates matter to gold buyers? Click here to read more...)
Bernanke's colleague Kevin Warsh also made a speech Tuesday. The Fed governor told an audience in London that the low yields now paid on US financial assets – a result of record-high prices – may reflect "increased appetite for risk.
"Or, far less auspiciously," he warned, "they may be indicative of investor overconfidence."
The US financial markets are only making new highs in US-Dollar terms, however.
For the bigger picture of what the current all-time highs in the Dow and S&P really mean today, click here and read on...