Gold Slips on Third Day of "Healthy Correction" as US Jobless Claims Rise

By: Adrian_Ash

SPOT GOLD PRICES slipped yet again in London on Thursday morning, recording the third falling AM Fix on the run at $726.75 per ounce.

On the currency markets, both the British Pound and the Euro gained a cent from yesterday's one-week lows against the US Dollar, after the Bank of England and European Central Bank both kept their interest rates on hold.

Crude oil dipped below $80 per barrel, while Europe's 300 largest equities ticked 0.2% higher on average. Wall Street stock futures pointed higher, despite last week's US unemployment data showing a greater rise in jobless claims than forecast.

Tomorrow brings the much-anticipated Sept. employment report.

"The demand side [for gold] is currently highly diversified," says Wolfgang Wrzesniok-Rossbach in the latest Precious Metals Weekly from Heraeus, the German refining group, "and this provides a strong foundation for the recent strength.

"Speculators are back in the Gold Market and, apart from last week, there were continuously reports about good physical demand from the jewelry industry...Demand for gold in industrial applications remains strong as well.

"The overall positive situation for gold certainly has therefore not changed because of the latest set-back and yesterday's move can be seen just as a healthy correction."

Gold demand rose today in India – the world's hungriest market for physical bullion –reports Reuters, after last week's new 27-year highs deterred private consumers.

"There is a pick-up in demand after a silent period of almost two to three weeks," said one private-bank dealer to the newswire. "People are seeing Gold Prices lower," added another dealer in Indore. "They're looking to pay around 9,200 rupees per 10 grams" – equivalent to $728 per ounce.

"If we see that level, there will be good buying despite Shradh," he went on, referring to the lull in Gold Buying usually seen during this two-week break in post-harvest festivals on the Hindu calendar.

"The first half of the year has been very good, but sales are not as buoyant now," says Rajan Venkatesh at Bank of Nova Scotia. Imports during full-year 2007 may come in "closer to 800-850 tonnes," he believes – a record total.

In London, the Lxyor GBS exchange-traded gold fund issued new shares this morning, growing its total issuance by 2.6%. The ongoing Commodities Week conference was told yesterday by "pension fund managers and their bankers investment in commodities was maturing, with vastly more managers and products on offer than five years ago," according to the Financial Times .

Back in today's Gold Market , the Tocom's most-active gold futures contract slipped 0.6% to the equivalent of $732.50 per ounce in Tokyo overnight. The Nikkei stock index also dropped 0.6%, while the Japanese Yen dropped to a new one-week low of ¥116.60 per Dollar.

Against the Euro, the Yen bounced from the two-month low hit at ¥165 on Wednesday.

"We're seeing fresh Euro strength today [as] the European Central Bank will stress it's maintaining its vigilant stance on inflation," says Neil Jones at Mizuho Capital Markets in London.

"[ECB president] Trichet is also going to want to stress his independence from those politicians calling on him to stop the Euro strengthening further."

But while the ECB fights calls to cut its interest rates – including a new plea Wednesday from BusinessEurope, the Eurozone's business lobby – the European money supply continues to surge, threatening a rise in the cost of living as a loss of purchasing power hits each single currency unit.

August saw the broad M3 measure of Europe's money supply rise 11.6% from a year earlier, only just below of July's record pace. Worldwide, "paper currencies have become confetti," says Dr.Marc Faber in the latest issue of the Gloom, Boom & Doom Report .

"Once people realize that these confetti, deposited in a bank or lent out at low interest, do not adequately protect them from the ongoing monetary depreciation (inflation), they [will] exchange them for all kinds of assets – such as equities, real estate, art, collectibles, commodities and foreign confetti of better quality in order to protect the purchasing power of their savings."

The supply of "confetti, equities and bonds can be increased ad infinitum," Faber goes on, "whereas the supply of precious metals in particular is extremely limited.”

Should the fall in financial security prices tip into deflationary global recession, concludes Faber, gold may also fall at first. "But once the realization sinks in how messy deflation would be for over-indebted countries and households, the Gold Price would likely soar."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 2007

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