Gold Slips as U.S. Dollar and Sterling Rally
Commodities / Gold & Silver 2009 Sep 29, 2009 - 11:43 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD fell again at the start of Hong Kong trade on Tuesday, dropping further to near-3 week lows by lunchtime in London at $986.50 an ounce.
Asian stock markets meantime closed the day higher, but European shares fell as the Euro fell back vs. the Dollar and Yen.
The British Pound jumped higher despite a raft of poor UK data, driving the gold price in Sterling below £620 an ounce – down 1.4% from Monday's five-month high.
"Gold needs to stay above $990 on the close to keep our bullish view alive," says a short-term technical analysis from Scotia Mocatta, the bullion bank.
"A break of $990 opens up $972 and $957, the former breakout lines. Topside resistance is now seen at $1000."
But "gold remains very well supported despite recent Dollar strength," counters Walter de Wet at Standard Bank, pointing to a target for the Euro – which typically moves in the same direction as US gold prices – of $1.50 by year-end.
Standard Bank's currency strategists expect the European single currency to hit $1.55 "if not $1.60" early in 2010.
"Combined with seasonal jewelry demand, our gold view remains one of buying on dips," says de Wet, reporting "some physical buying returning to the market" as prices fell to the mid-$980s."
MKS Finance in Geneva, a division of the Swiss refining group, also reports "Asia-based operators seeing jewelry demand pick up in India as the festive period approaches.
"[But] gold will need to see ongoing good physical and ETF demand in order to resist to pressure" from the rebounding US Dollar.
Early Tuesday the Dollar bounced from a 6-month low vs. the Yen beneath ¥88.50, and rose for the fifth day running against the Euro.
Crude oil fell 1% towards $66 per barrel. Short-dated government bonds also fell in price, pushing yields higher.
"Driven by a combination of investment and speculative purchases, extended by technically driven trades, and the lack of any robust demand...be aware of a strong likelihood of [gold] correction early in the fourth quarter" warns a new report from Frederic Lasserre at French banking giant SocGen today, quoted by Bloomberg.
"A certain hesitancy has emerged amongst fast money to buy gold at the moment due to fears of excess long positioning in Comex gold futures," says Swiss bank UBS's London analyst John Reade.
"We continue to expect a deeper correction in gold and silver in coming weeks."
Looking back at the last 10 years of market-beating gold returns, "Investors who dared place some of their eggs in gold in recent years have been nicely rewarded for what they did," says National Bank of Canada economist Matthieu Arseneau.
"However, the time has come now to revise their positions [because] risk aversion is gradually returning to pre-crisis levels and inflation fears should abate."
Looking at the past three decades, "In times of economic recovery, the return on gold falls well short of the return on the stock market," Arseneau says.
His time-frame includes both the "long boom" of 1982-2000 – when US stock prices rose 13-fold but gold fell by two-thirds – as well as the record equity bull of 2002-2007, when US stocks doubled over 60 months and the gold price gained more than 170%.
Over on the data front Tuesday – and ahead of US housing-price and Consumer Confidence data – Japan reported its sharpest ever year-on-year drop in retail prices, down 2.4% in August from Aug. '08.
Spain reported consumer price deflation of 1.0% year-on-year for this month.
Adjusted for inflation, Spain's retail sales fell 4.0% in August – the sixteenth consecutive month of falling sales.
Here in the UK, the early CBI Distributive Trends survey pointed to a rebound in consumer spending.
But the data came against a worse-than-expected fall in GDP, a decline in consumer credit, a sharp drop in money-supply growth, and a fresh surge in the UK's balance of trade deficit to a two-year record of £11.4 billion ($18bn) between April and July.
Today the Bank of England met with leading commercial economists from the City to discuss its program of quantitative easing and the commercial banks' failure to pass the £150 billion spent so far ($225bn) onto consumers and business as loans.
By Adrian Ash
BullionVault.com
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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2009
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