Gold News

Gold hits 11-week high as correlation with global equities breaks

Spot Gold Prices traded in a tight range early Monday, briefly nearing Friday's two-month high of $685 per ounce before recording the highest London Fix since May 9th at $683.50.

"Gold seems to be supported at the moment by both the weak Dollar and strong crude," said a Bank of China gold trader to Bloomberg this morning.

In the currency market, Sterling touched a new quarter-century high versus the US currency above $2.0600. That capped Gold Priced in Pounds below £332.50 per ounce at the London opening.

The Euro, meantime, pulled back from Friday's fresh all-time high against the Dollar above $1.3840. That helped the Euro Price of Gold touch a new seven-week high of €495 per ounce.

"Gold is still not getting the headline space it will in the next year," says John Dizard in today's Financial Times, "but it has broken out of the desultory downtrend that began in April.

Why? "The perception of underlying systemic risk is not going away," says Dizard, noting the ongoing collapse in complex credit derivatives based on subprime home loans.

"This trend also seems to be supported, so far, by the European national central banks, who aren't selling as much gold as they were."

Overnight in Tokyo, the Nikkei equity index sank more than 1% to a one-month low. Gold futures traded at the Tocom for delivery in June '08 ended little changed at the equivalent of $689.80 per ounce.

Last week saw the Price of Gold rise 2.3% for US Dollar investors, while the broad S&P equity index lost 1.1% of its value. Gold also gained nearly 2.1% against the Euro, while the EuroFirst 300 stock market index lost 1.7% for the week.

British investors wanting to Buy Gold saw it rise 1.4% against the Pound Sterling, while the UK's leading 100 shares dropped 2% of their value on average over the week.

Does this mark a sudden departure from gold's close correlation in 2007 with world equity markets? "Of late," notes Wolfgang Wrzesniok-Rossbach in the latest metals report from Heraeus, the German refining giant, "when the financial markets came under pressure, gold also found itself losing ground."

Indeed, since 2003 the Gold Market has risen – and fallen – in lock-step with the world's major stock markets.

"But this time around it seemed to react inversely," says Wrzesniok-Rossbach. "Even then, to make a qualified assertion that gold has re-discovered it’s traditional role as a 'safe haven' is perhaps a little too early."

In the broader markets, both Japanese and US government bonds rose to six-week highs overnight, pushing interest rates lower again after last week's 15-point drop in the yield on ten-year US Treasuries. Gasoline futures, meantime, continued to drop after US refineries announced they're now running at the fastest pace in seven weeks.

Crude oil for September delivery fell 0.5% after the Opec cartel of oil-producing nations said it may increase output to ease energy-cost pressures on the global economy. Corn and soybean futures fell while wheat futures rose, and rubber prices slipped back for the first time in four sessions after Beijing reported that China's natural rubber imports fell 0.2% in the six months to June.

"In the medium-term Gold Prices do look a little overbought," says today's technical commentary from Standard Bank in Johannesburg. "But last week’s rally looks as if the bulls may test the next level of technical resistance at 693.40.

"Should this level break then it would seem that gold may be beginning to attempt a retest of the psychological 700 level in the short-term and maybe even the 26-year high of 730, set in May 2006, in the long-term."

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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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