Gold News

Gold Gives Back Early Jump on Bounce in Yen; Oil Gains as US Bond Yields Pay Less Than Inflation

Gold Prices gave back half of an early $6 rally on Monday morning, trading below $789 per ounce by 10:00 in London after losing 5.7% last week – the biggest one-week decline since March.

"Last week's activity pattern is a bearish engulfing," reckons Christopher Langguth in his technical analysis for Mitsui today. Study the Fed. '08 gold futures contract, "it implies lower prices will follow," he says.

"Any further weakness should see more long liquidation. There is, however, no reason to be short."

Twenty Gold Market professionals surveyed by Bloomberg News this weekend also believe prices are going to slip further. Ten were bearish; only seven forecast higher Gold Prices.

"[But] last week's loss for gold surprised most of the analysts surveyed Nov. 8 and Nov. 9," the newswire notes. "The survey's forecasts have been accurate in 115 of 186 weeks, or 62%."

Crude oil prices rose sharply overnight, pushing back above $95 per barrel in Asia, as soybean prices neared a new 19-year high, followed higher by corn and wheat.

Japan's Nikkei stock-market index lost 0.7% for the day, reversing earlier gains as Mizuho Financial – the country's second-largest bank – gave back a 3.4% rally to end the day lower.

European stock markets opened the week flat overall, but London's FTSE100 sank 0.5% – and the British Pound failed to hold onto Friday's late bounce – after new data this morning showed the average asking price for UK houses falling 0.7% from this time last month.

"If you have to sell, then seriously consider dropping your price and taking an offer now rather than holding out," says Miles Shipside, director of the RightMove consultancy that compiled the research.

"You could end up being offered even less in a few months' time."

As home prices have fallen, the average time on market for a British home has now risen from 85 to 92 days, the highest figure in Nov. since 2002, when RightMove began tracking such data in 2002.

Meantime Northern Rock, the first British bank to suffer a run by anxious savers in more than a century, saw its shares plunge another 11% in early trade – taking its drop since August to fully 85% – after it said this morning that all eight rescue proposals received over the weekend were "materially" below NRK's stock-market value at last Friday's close.

By the time London opened today, this poor news from Britain's real estate and financial sectors knocked one cent off the Pound vs. the Dollar, pushing the Gold Price in Sterling above £385 per ounce.

For European investors wanting to Buy Gold Today, the metal slipped €2 per ounce from its opening spike in Asia to €541.

Tokyo gold futures were little changed today, with the Oct. '08 contract ending the session equal to $796 per ounce as the US Dollar slipped against the Japanese Yen, nearing last week's 18-month low beneath ¥110.

The Dollar rose strongly vs. the European single currency, however, pushing the Euro down half-a-cent at the start of London trade to $1.4630.

"There are still no fundamental reasons to buy the Dollar," as one Japanese fund manager reminded Reuters earlier – and now the latest survey from the National Association for Business Economics says the number of US economists forecasting a recession has nearly doubled in the last month.

Nine out of 50 economists now put the odds of a US recession during the next 12 months at 50% of above. "More than two-thirds of those polled said the chance of recession was at least 25 percent," according to Bloomberg.

In particular, US auto sales look set to plummet by as much as 9.4% warned a panel of experts at Reuters Autos Summit in Detroit this weekend.

"While I am very negative on the autos sector over the next 12 to 18 months, I'm just not sure how bad it could be," said Jerry York, a former board member at General Motors and chief financial officer at Chrysler.

"We all know housing is a debacle."

"I hope I'm wrong," added Thomas Stallkamp, a former president of Chrysler, "but I think the mortgage issue is going to freak people out and that will hit pretty hard in '08."

US housing data, based on recent home sales and expected building rates, is due out from the National Association of Home Builders at 14:00 GMT today. Tomorrow (Tues) will see the US Census Bureau report New Building Permits and Housing Starts for October at 12:30 GMT.

Minutes from the last meeting of the Federal Reserve – when Ben Bernanke and his team cut US Dollar rates to 4.50% – follow at 18:00 tomorrow.

In the bond market, however, the favored "safe haven" of institutional funds – US Treasury notes – have now risen so far, so fast, that "it'll be hard for yields to go down further," says Kei Katayama, co-manager of $1.6 billion in Dollar-denominated bonds at Daiwa Securities in Tokyo.

"The short end is especially expensive."

The futures market now puts the chance of a further reduction in the Fed's target interest rate to 4.25% at above nine-in-ten when it meets in Dec. Anticipating that move, two-year US Treasury bonds now yield 1.14% less than the current Fed funds rate.

Short-dated US Treasury Yields Now Pay Less than Inflation too, standing below the latest official reading of the Consumer Price Index. That means bonds are destroying the wealth in the face of record-high oil prices and a growing inflation in world food prices.

What to defend your wealth against falling bond yields and rising inflation? To find out what worked last time the world faced recession coupled with soaring prices, click through and Register for this Free 16-page Gold Report now...

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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