Gold News

Spot Gold Reverses Dollar Rally, But Indian Festival Buying "Healthy" as Short-Term Western Investors "Take Profits"

Spot Gold unwound almost all of yesterday's 1.5% gain vs. the Dollar in Asian and London trading on Tuesday, slipping as the US currency recovered its sharp losses against crude oil, world equities and the Euro.

"Gold was well offered" at the start of London trading today, says one dealer.

Silver Prices slipped further, reversing Monday's 2.2% rally entirely.

"The selling is profit-taking," says Bernard Sin at Swiss refiner MKS's Finance division in Geneva, speaking to Bloomberg.

"Gold has come so far. In the medium term, the Dollar correlation will continue."

Averaging a daily correlation to the Euro/Dollar exchange rate of virtually zero over the first 9 months of the year, the Dollar price of Spot Gold now shows a near-perfect correlation of +0.95 with the Euro for Oct. so far.

That number would read +1.0 if they moved precisely in lockstep.

"Strong profit taking" in futures and options, plus falling inflows of money into ETF gold trusts, saw Gold Investment in the developed world drop by 1% last week according to latest data from London's VM Group consultancy.

Buyers in India, in contrast – still the world's No.1 source of physical gold demand, continuing to outstrip China – are using the pull-back to Buy Gold ahead of next month's Hindu festivals, according to dealers.

"Trading sentiment turned bullish on emergence of buying by retail customers for upcoming Dhanteras and Diwali festivals, which witness maximum consumption of the precious metals," says the Hindu Times.

Commerzbank analysts reckon Indian gold imports could breach 100 tonnes this month alone, easily matching 2009's total of 340 tonnes.

UBS last week saw its third-highest sales to India so far this year, says metals strategist Edel Tully in a report.

"Physical demand at the levels we saw on Friday is usually an indicator that gold's price trough is very near.

"[Gold Buying] should remain healthy."

Back in the West, European stock markets sagged this morning following weak corporate earnings reports.

Swiss investment bank UBS missed third-quarter revenue forecasts by almost one-third, surprising analysts with a pre-tax loss despite the first rise in wealthy-client inflows since 2008.

London's FTSE100 also fell, dropping 0.9% after strong UK growth data – nearly twice analyst forecasts at 0.8% between July and Oct. – meant a "likely delay to a further bout of quantitative easing" by the Bank of England, according to one City economist.

Gilt prices fell, pushing 10-year yields more than 0.12% above last week's new record low of 2.94%.

The Pound jumped towards $1.59, squashing the price for UK investors looking to Buy Gold below £840 an ounce, just above a 3-week low.

Versus the Euro and Japanese Yen, however, the Pound rose only to 1-week highs.

"If the Dollar is just about fully-priced for more Fed quantitative easing," says Steven Barrow, currency strategist at Standard Bank, "could the market start to look at the next QE domino to fall?

"A figure we hear more and more [for the Bank of England] is £50bn, whether from pressure groups like the British Chamber of Commerce, or private-sector economists. This amounts to 25% of the [outstanding QE] amount...not too dissimilar to the size of QE expected at the Fed.

"If this happens, it could be the Pound that's about to topple."

US central banker Thomas Hoenig – who has voted against every Fed decision so far this year – yesterday called QEII "a dangerous gamble...risk[ing] the next crisis four or five years from now."

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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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