Gold News

Gold Slips as Dollar Ignores US Slowdown, Global Inflation Focus; "Cash Pipelines" Stay Shut

Spot Gold Prices slipped 1.1% early in London on Thursday, giving back yesterday's bounce to fall below $943 per ounce as world equity markets ticked higher and crude oil reached a one-week high after a militia attack on Iraq's main oil terminal.

"The Gold Market at the moment continues to drift sideways," says Mitsui in Sydney. "With quarter-end approaching, the metal's momentum to the upside could well be capped in the immediate term."

For European investors wanting to Buy Gold today the price slid beneath €600 per ounce, even as the single currency dropped 0.6% against the Dollar.

The US Dollar also rose against the Japanese Yen, regaining the ¥100 mark despite new data that confirmed the world's largest economy grew by only 0.6% in the last three months of 2007 – down from 4.9% growth in the third quarter.

Prices paid by US residents rose sharply, however, increasing 3.7% year-on-year in Dec. Inflation over the late summer months was only 1.8% annualized.

An auction of $18 billion in five-year US Treasury bonds today will offer yields of barely 2.55% per year, "close to the lowest levels since 2003," according to Bloomberg.

In contrast to the Federal Reserve's aggressive rate-cutting, "the European Central Bank is trying, more than anything else, to prevent inflationary expectations," said ECB president Jean-Claude Trichet on German television last night.

The central bank of Brazil today raised its inflation forecast to 4.6% for 2008, while Taiwanese authorities raised their key lending rate to a near seven-year high.

Back in the metals market, the Gold Price in British Pounds today dropped below £470 as the Pound fell back from the morning's seven-session high of $2.0190.

All base metals rose except zinc at the London Metal Exchange, while Comex silver contracts dropped 0.6% ahead of the New York open as silver continued to out-strip and magnify the volatility in Gold Bullion prices.

"With the Dollar up, it shouldn't come as a surprise that Gold Prices are falling," reckons Peter Fertig at Dresdner Kleinwort's office in Hainburg, Germany.

Reuters reports strong Gold Buying by jewelers and investors in Indonesia, Thailand, Vietnam and India, where the spring wedding season is fast approaching.

"We heard Thailand was running out of gold bars this week," one dealer in Singapore told the newswire overnight, "because many refiners were closed over the Easter holiday, while demand was good.

"I would think physical demand is offering support for gold," he added, pegging $940 as the metal's lower limit for now.

Wall Street stock futures pointed higher ahead of Thursday's open, but Oracle – the world's third largest software firm – threatened to drag the Nasdaq lower after dropping 8.3% overnight on below-forecast earnings.

Crude oil meantime rose to a one-week high above $106 per barrel on news of a pipeline explosion near Basra in southern Iraq.

The country's second city has now been under attack from militia loyal to Moqtada al-Sadr, the Shi'ite cleric. Basra ships most of the 2.32 million barrels of oil Iraq pumps each day.

Pipeline disruptions continued to affect the world's major capital markets early Thursday as well, with the European Central Bank offering extra short-term funds before the end of March. Both the Bank of England and Swiss National Bank worked to ease short-term lending rates in the open market, according to a Reuters report.

"Normally the banks lend to each other," noted Gary Shilling of the eponymous finance consultancy to CNBC overnight, "but what [the Fed] are finding is the banks don't trust each other, so they've got to lend [directly] to the ones who need it."

Standard Fed procedure offers short-term loans to the big "money centre" banks, who are then supposed to pass these extra funds to smaller institutions. But with fear still blocking the inter-bank loans market, "the Fed are stepping in and providing the function of the banking system," says Shilling.

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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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