Gold News

Gold Drops 1.7% as Global Equities Sink & Oil Falls on "Threat" to Fed Rate-Cuts

Spot Gold Prices plunged $15 into the London close on Tuesday, catching up with a torrid day for global equity markets despite bullish news for new gold investors.

Sales at US retail stores fell in December, new data showed today, while factory-gate inflation at US businesses rose at their fastest pace since 1981.

Caught between a slowing economy and rising inflation, the US Federal Reserve has been widely tipped to slash its key interest rate further still when it meets on Jan. 30th – and low or negative rates of interest after inflation have historically driven savers and investors out of cash & bonds, into the proven "safe haven" wealth-store of gold.

Across the Atlantic, consumer price inflation in the United Kingdom held above the Bank of England's target for the third month running, data said today. The UK government announced an inflationary pay-rise for public health workers.

The CRB index of commodity prices then opened the day in New York at an all-time record after oil prices rose on news of militant threats in Nigeria – the world's fourth largest producer nation – that halted shipments for Royal Dutch Shell,

But Italy's La Republica newspaper quoted Lorenzo Bini-Smaghi, a member of the European Central Bank, warned that the sinking US Dollar may clip the Fed's room-for-maneuver on cutting interest rates – and as word spread, the Dollar shot higher against the Euro, crude oil and gold.

The S&P 500 sank 2.2% on a raft of poor fourth-quarter earnings reports, and with this week's early rumors of a 100-point cut to US interest rates from the Fed looking unlikely, the index held at its lows for the session as the close drew near.

In Europe, London's FTSE100 had earlier ended the day more than 3% down at a six-week low. Germany's Dax dropped 2.1% for the day.

"I would not be so sure about the movements of the Fed. There is a serious problem with the Dollar in America," said Lorenzo Bini-Smaghi. "We will see what margins they have for further rate cuts."

But analysts at top investment banks Goldman Sachs, Morgan Stanley and Merrill Lynch all believe the United States may already be in recession.

Fed chairman Ben Bernanke remains on record as saying he will devalue the Dollar – by slashing interest rates and driving down its purchasing power – in an attempt to avoid a recession becoming depression.

In the battle so far between central bankers and the collapse of the global credit bubble since August, Gold Prices have been the only clear winner. US Treasury bond investors are being eaten alive by shrinking yields paid in a fast-shrinking currency.

Physical gold bullion, in contrast, has gained more than one-third vs. the Dollar...40% against the British Pound...and 23% vs. the Euro.

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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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