Gold Prices continued to drift lower from yesterday's two-week highs early Thursday, recording an AM Fix in London of $809 per ounce as financial stocks fell hard despite Wednesday's attempt by five of the world's biggest central banks to ease pressure in the global money markets.
London's FTSE100 index lost 1.3% at the opening while US government bonds reversed Wednesday's three-year record sell off, pushing the yield on two-year Treasuries 3 pips lower to 3.10%.
Hong Kong equities sank 2.7% and Tokyo's Nikkei index closed 2.5% lower.
Gold futures rose at Japan's Tocom exchange, taking the Oct. '08 contract 1.2% higher to equal $817 per ounce.
"We continue to look for an opportunity to get tactically long gold again but need to see speculative positioning reduced and jewelry demand return," says John Reade, head of metals trading at UBS.
"A nice double top has formed after the reaction from the resistance level at the old 1980 high" of $835 per ounce, counters Phil Smith for Reuters India, "but the Gold Market needs a break down to around $770 to confirm its completion."
On the currency markets this morning the Yen recovered from Wednesday's one-month lows vs. the Dollar, while the Euro slipped back to the bottom of its one-week uptrend, dropping half-a-cent to $1.4690.
That kept the Gold Price in Euros above €550.50 per ounce. British investors wanting to Buy Gold today saw the price hold above £396 per ounce as the Pound Sterling slid one cent from yesterday's top to $2.0417 on news that UK house prices fell for the fourth month running in Nov., with 41% of chartered surveyors reporting lower prices vs. 23% saying prices are still gaining.
Crude oil prices today ticked lower from Wednesday's 4.9% jump to $94.39 per barrel, but wheat futures pushed higher after the US Dept. of Agriculture cut its forecast for US stockpiles ahead of next June's harvest by 10%.
Soybean prices rose for the fifth session running to reach a new 34-year high, while analysts at J.P.Morgan today raised their forecast for average Gold Prices in 2008 from $716 to $814 per ounce.
"With the impact of the sub-prime issue in the United States continuing to unfold, gold's safe haven status has once again come to the fore," the bank said in a research note.
"Looking out to next year, we expect strong demand from India, China and the Middle East to remain positive for gold."
Wednesday's co-ordinated press releases from six of the world's major central banks – led by the US Federal Reserve – were "an admission of failure [with] an ad hoc quality to them," says the Times of London today.
"The formal mechanisms that might have made for an earlier and more elegant execution of policy do not exist at present. This is part of a much broader challenge to the governance of the world: the inadequacy of old institutions to deal with new realities."
The plan aims to remove the stigma of borrowing short-term funds from the Bank of England – currently struggling to rescue Northern Rock, the over-geared UK mortgage lender that suffered Britain's first banking run in more than 130 years after appealing to the BoE for emergency funds in Sept.
Rather than lending short-term funds at a penal rate of interest 1% above its key base rate, the Bank of England will now offer £23 billion ($47bn) across two open auctions with no minimum bid. In return, the Bank will accept lower-grade investment bonds as collateral.
The plan also sees the US Federal Reserve move to inject Dollar-liquidity into Europe's money markets by lending $24 billion to the European Central Bank (ECB) in Frankfurt and Swiss National Bank (SNB) in Geneva via a currency swap.
"While more money slushing around the banking system will alleviate the liquidity issues, it also means more spending power, and with it the potential for inflation and higher Gold Prices," says Investec Australia today.
The bank's analysts cut back their forecast of a $30 gain by year-end, however, because "this move by the central banks should help ease some of the tensions in the credit markets. Hence investors will be less likely now to be driven into gold for safe-haven reasons."
But growing pressures on the world's biggest banks and financial institutions remain. Japan's second-largest bank, Mitsubishi UFJ, today lost 7.9% on the Tokyo stock exchange, while the fourth largest bank – Sumitomo Mitsui Financial – sank by 7.3%.
In the United States, Bank of America warned yesterday of "disappointing" results for the fourth-quarter, while PNC – Pennsylvania's largest bank – marked down $1.5 billion in mortgage losses.
Wachovia, the fourth largest bank in the US, said that its writedowns since the start of October already outstrip the $1.3 billion written off during the third quarter, while in Europe, the ECB said in a separate report that the region's 21 biggest banks now hold €244 billion ($359bn) in off-balance sheet assets that threatening "a credit crunch in the wider economy" if they can't be refinanced with new interbank loans.
Dismissing yesterday's central-bank announcements, "the Fed's actions are not going to be enough to prevent the situation from deteriorating," reckons Koichi Kurose, chief strategist for the $160bn Resona Trust & Banking Co. in Tokyo.
"Further investment losses are very probable and we've got to be cautious about the earnings of financial companies."
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