Gold Trends Lower as Dollar Rally Continues
Commodities / Gold & Silver 2009 Jan 13, 2009 - 12:59 PM GMTBy: Adrian_Ash
THE PRICE OF GOLD BULLION let slip a 0.9% spike Tuesday lunchtime in London, struggling near a one-month low as world stock markets tumbled for the fourth session running.
Both the US Dollar and Japanese rose yet again on the currency market, while crude oil fell back to $36.50 per barrel.
Ten-year US Treasury bond yields held within spitting distance of all-time record lows at 2.30% per year.
"We view the US Dollar as the most important driver of the Gold Price over the medium term," says Deutsche Bank in a note, quoted by the Financial Times .
But "now that the risks of a full-blown banking system collapse have receded, we believe 'safe-haven' demand for US Treasuries will fade and remove some of the upward pressure on the US Dollar," it goes on.
A raft of dismal data meantime knocked a fresh hole in the British Pound early Tuesday, driving it back to a one-week low of $1.4540 and supporting the Gold Price in Sterling above £560 an ounce.
UK retail sales sank 3.3% year-on-year in December, while three-in-four property surveyors reported a wildly negative outlook for house prices.
Despite the 30-year record plunge in Sterling's trade-weighted value, the UK's trade deficit worsened to £4.5 billion in Nov.
Back with Gold in 2009 , meantime, "$850 is proving to be a magnet area for the metal, and without any physical interest from India's Gold Jewelry Buyers , gold is likely to oscillate below this price level for a while," says today's investment analysis from Mitsui in London – "particularly as the Dollar strengthens against the Euro in anticipation of rate cut by the ECB on Thursday.
Pointing to the "massive 135% appreciation" of investor long interest in exchange-traded gold securities between end-Nov. and last week, "The speed with which long positioning has been built up in the market over a relatively limited time period suggests any immediate journey to the upside will lose steam," Mitsui goes on.
"Therefore, we would not be too surprised to see a contraction in long [bullish] positions in the short term."
Over in Tokyo today – re-opening after the long "Coming of Age" weekend – the Tocom Gold Future market caught up with Monday's sharp drop in New York, falling by the maximum daily value allowed.
Sinking "limit down", the Dec. 2009 contract closed the day more than 6% lower at ¥2,369 per gram. Japanese investors have now seen the price of Gold Investment drop almost 30% from last summer's 25-year highs.
The Nikkei share index, meantime, has lost two-fifths of its value, dropping another 4.8% in Tuesday's trade.
Looking at the broad sweep of modern investment history, "If someone really felt that the similarities between the 1974 low and the current market conditions are overwhelming," writes long-time gold bull Dr. Marc Faber in his latest Doom, Gloom & Boom Report , "he should consider Buying Gold and oil rather than US equities (and also shorting US bonds).
"Gold corrected between the end of 1974 and the summer of 1976 by 40%, while the stock market surged. But from its August 1976 low, Gold Increased Eight-Fold ."
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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