Gold News

Gold's Summer Downturn "May Be Outweighed" by Money Inflation, Rising Against All Currencies

Gold Prices ticked 0.7% lower early Monday after recording an AM Gold Fix in London at $912.50 per ounce as equities fell, government bonds rallied, and the US Dollar bounced hard from a 7-week low to the Euro.

"Our bullish call is for precious metals, simply because there is scope for more investment demand in the coming months," said Tobias Merath, head of commodity research at Credit Suisse in Zurich, to Bloomberg TV today.

Pointing to $1,000 an ounce as "obviously a big resistance level", Merath believes that "Gold has hit the bottom and is on its way up.

"We think it will break $1,000 at the beginning of the third quarter [September], when Gold Prices usually do best."

Also citing the Typical Gold-Price Cycle – but voicing concerns over the potential for "increased scrap supply or weakened investment demand" – RBC Capital Markets last week forecast "a pullback of 10-15% this summer, suggesting a potential downside risk of $750 to $800 an ounce."

From there, RBC expects Gold Prices to rise and break $1,000 for the third time "late in the year or into 2010", while Investec Asset Management says gold may defy its typical price-cycle this year.

"The expected seasonal downturn in Gold Prices may be outweighed by renewed fears about the long-term purchasing power of the US Dollar and other currencies," Investec is quoted by MiningMX.

As Japanese Gold Futures closed Monday 1.1% lower, world stock markets also slipped back, capping their nine-week run on the MSCI global index after adding more than one-third from March's low.

The Euro meantime reached its best level in 7 weeks at $1.3650, helping squash the Gold Price in Euros to €669 an ounce – some 3% below its average for 2009 to date.

"In 2007, when the Dollar traded at around $1.35 against the Euro, the Gold Price was below $700," says an email from Walter de Wet at Standard Bank today. That same Euro/Dollar rate in 2008 saw the Gold Price shift to around $800, and "In 2009, the Gold Price is finding good support at $900."

In other words, "There is better support for gold at the same Euro/Dollar exchange rate," concludes the note, because "All major currencies are being devalued and, as a result – and on a relative basis – they are trading in the same ranges seen before.

"However, these currencies are weaker against tangible assets such as gold."

Already spending 6% of annual economic output on its stimulus package, the United States government was urged to expand its program further at the weekend, with Nobel-laureate Paul Krugman warning that "We're doing what the Japanese did in the Nineties.

"A second stimulus is becoming clearly urgent. They need a very, very strong stimulus."

"In spite of some spring sprouts," agrees fellow economist Joseph Stiglitz, "we should prepare for another dark winter. It's time for Plan B in bank restructuring and another dose of Keynesian medicine."

A report leaked to the Wall Street Journal meantime claims that last week's "stress tests" saw the Federal Reserve "significantly scale back" the volume of new capital which America's largest banks must raise after they objected.

Wells Fargo's "capital hole" was apparently reduced from $17 billion to less than $14bn. Bank of America's gap was cut to $34bn from more than $50bn.

Citigroup's capital shortfall shrank to $5.5bn from "about" $35bn.

"For the coming days we expect reduced volatility and a trading range between Thursday's high [at $925] and $895," says Wolfgang Wrzesniok-Rossbach at the German refining group Haraeus, speaking to Bloomberg.

"On average, the metal this week should trade higher than in the past six weeks."

Despite latest data from the US Gold Futures market showing only a small increase in speculative positions last week, twenty-two of the 32 professional traders, investors and analysts surveyed by the news-wire this weekend now see the price rising by Friday's close.

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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