Gold News

Gold Gives Back This Week's Gains as Dollar Rallies on Surging Inflation; Interbank Interest Rates Fail to Fall

Gold Prices dropped more than $15 late in London on Thursday – the sharpest fall in three weeks – as the US Dollar rallied on sharply higher inflation data and stock markets tumbled worldwide.

By the close in London, the Gold Market stood back at last week's closing level of $794 per ounce, unwinding an earlier $20 gain. The FTSE100 index stood nearly 3% lower, meantime, its worst performance since the credit crunch first bit in August.

Led down by banking shares HBOS (off 8% for the day) and Northern Rock (now down 95% since its peak of Feb.), the FTSE's slide came as London's interbank lending market failed to respond to Wednesday's concerted central bank action to ease the pressure on financial firms.

Sterling rates fell from 6.63% to 6.51% for three-month loans, but Euro interest rates remained at 4.95% – nearly 1% above the European Central Bank's current target.

The cost of borrowing US Dollars slipped only 7 pips to 4.99%, about half the projected drop according to some analysts, despite the promise of a $100bn cash injection for Western money markets from the Federal Reserve, ECB, and the central banks of the UK, Canada and Switzerland.

"It's not going to help us find an exit to this crisis," warned Cyril Beuzit at BNP Paribas in London today.

"These [central-bank] measures aren't going to address the root cause of the crisis. Banks are still reluctant to lend money to each other because there are serious concerns about potential further bad news."

By lunchtime on Wall Street, US stocks on the S&P500 were 0.9% lower, while crude oil prices slipped 1.5% to $93 per barrel.

Bizarrely, the all-time record high oil price of $99.29 hit early last month came to the Dollar's aid today, pushing the Producer Price Index up to a 34-year record of 7.2% in November.

This challenge to the US Fed's lower interest rates helped the Dollar rise against 13 of the world's 16 most-actively traded currencies, according to Bloomberg data.

New data also pointed to 1.2% growth in US retail sales last month, twice the consensus forecast.

The Dollar's bounce capped the drop in gold for European and British investors to less than 1.7%. The Gold Price in Euros ended the London session at €544 per ounce, more than €2 above last Friday's closing level.

Concerned the surge in inflation will continue while the Dollar's bounce fades? To Buy Gold online today, accessing the very tightest prices now available to private investors worldwide, visit BullionVault here...

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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