Gold News

Gold slips to $650 as Yen weakens; Swiss central bank to sell 250 tonnes

The spot gold market held steady above $653 during Asian trade on Friday, before slipping towards $650 per ounce as the London opening drew near.

In Tokyo the benchmark April '08 gold futures contract rose 0.4% against the Yen, but it held at the equivalent of $659 per ounce in Dollar terms.

The weakening Yen hit a fresh four-and-a-half year low of ¥123.04 to the Dollar, encouraging Tokyo funds to push Japanese export stocks higher, helping the Nikkei stock index close at a one-week high.

The big news for investors wanting to buy gold now remains yesterday's announcement from the Swiss National Bank that it will sell 250 tonnes of gold – one fifth of its remaining reserves – over the next two years.

Directorate member Thomas Jordan told reporters that, thanks to the rising gold price, gold's share in Switzerland's currency reserves had risen from 33% to 42% since mid-2005.

The sale will rebalance Switzerland's portfolio, said Jordan – a similarly practical reasoning to that given when the SNB sold 1,300 tonnes of gold between 1999 and 2005.

The planned sale, reckons John Bridges at J.P.Morgan, will equal around 6% of annual gold demand between now and 2009.

The sale may put "downward pressure" on gold and gold stocks, says Bridges. Put the announcement yesterday failed to dent Thursday's 0.4% rally – and heavy official gold sales only tend to harm the gold price when it's already in a confirmed downtrend. (Read more here...)

Even so, Matt Turner – an analyst at Virtual Metals, publishers of the highly respected Yellow Book – thinks it significant that the SNB bank cited re-balancing to 30% of reserves as the reason for selling a portion of its gold.

"Greece has 80% of its reserves by value in gold," Turner tells Resource Investors, "Portugal 79%, Italy 66%, Germany 63%, Netherlands 56% and France 56%. If these banks were to reduce their reserves to 30%, Germany would have to sell 1,802; Italy 1,341; France 1,273; Switzerland 394; Netherlands 311 and Portugal 235 tonnes."

In the oil market, meantime, crude prices continued to rise, hitting a fresh 9-month high above $67.64 at the Comex after a drop in US refining capacity.

"People understood that it was going to be a race for the refiners to keep up and now they're not even doing that," says Tobin Gorey, commodity strategist for Commonwealth Bank of Australia.

"That's pushed gasoline and crude higher," he goes on, pointing to the six-week low in US refining rates even as the summer driving season gathers pace.

US Treasury bond yields also continued to rise overnight, suggesting fears of inflationary pressures ahead despite a swift turnaround in comments from Chicago Fed president Michael Moskow.

After warming to the sell-off in long-dated bonds last Friday – the sell-off that took 10-year yields up to match short-term Fed rates – Moskow told yesterday's Wall Street Journal that US inflation is retreating "more rapidly than anticipated".

Thursday's Producer Price data contradicted that view. Today brings US Consumer Price inflation data at 08:30 New York time.

Wall Street forecasts a rise of 0.6% in May from April's 0.4% rate. Anything higher may push fresh investment Dollars back into gold.

"A lot of the short-term money has been taken off the table," reckons Jeremy East, head of metals trading at Standard Chartered Bank.

"A lot of funds have got out, but long-term holders are still there."

If you'd like to buck the "hot money" and start building a long-term position in gold bullion today, be sure to visit for a complimentary gram of investment-grade gold now...

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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