Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Starts Week Unchanged as Crude Oil Falls , Further Fed US Interest Rate Cuts Expected

Commodities / Gold & Silver Aug 20, 2007 - 09:18 AM GMT

By: Adrian_Ash


SPOT GOLD PRICES dipped before rebounding early Monday, recording an AM Fix in London of $658.50 per ounce, virtually unchanged from Friday's US close.

"Some people are still afraid there might be more bad news ahead, and liquidity in the gold market is poor because most of the traders are not back from their summer holiday," said Ng Cheng Thye, head of Standard Bank's precious metals desk in Singapore , to Bloomberg earlier.

"Investors might still liquidate assets for margin calls and those involved in the subprime woes still don't know how bad the damage is," he said, but added that physical buying from Asian jewelers should cap any decline in Dollar gold prices to $650.

Open interest in Comex gold futures and options shrank nearly 14% in the three weeks to last Tuesday, even as the bullish ratio amongst commercial speculators improved. Liquidation also hit the largest exchange-traded gold funds, with StreetTracks GLD selling three tonnes of the gold it holds in trust for its shareholders on Thursday. The LyxOr GBS fund traded in London , Paris , Milan and Frankfurt dropped more than six tonnes that day, equivalent to 6.5% of its bullion holdings.

But while the world's largest financial institutions may be forced to sell gold as they scramble to cover losses elsewhere, demand from private investors and jewelry buyers continues to look strong ahead of the traditionally busy gold-buying season in India that's due to begin next month.

The World Gold Council announced on Sunday that gold demand in Saudi Arabia rose faster than first reported between April and June, growing by more than 30% from a year earlier. "The Saudi market saw a very strong recovery in the second quarter," said Moaz Barakat, managing director of the WGC's Middle Eastern office. "Gold prices were less volatile and the euphoria of the stock market and selling gold to invest in stocks cooled off."

In Tokyo today, the benchmark June '08 gold futures contract leapt 2.5% against the Japanese Yen, closing Monday's session equivalent to $664.91 per ounce. The Nikkei stock market index rose 3% – its greatest one-day surge in 13 months – as Japanese equity investors caught up with Friday's US rally, led by a cut in the interest rate charged to big investment banks by the Federal Reserve.

The Fed's action took the cost of borrowing short-term emergency funds from its "discount window" down from 6.25% to 5.75%. The first cut since June 2003, and the largest move in the primary discount rate since November 2002, this rate-cut is only available to the largest commercial banks, but a cut in the broader Fed funds rate is now widely expected.

Investec this morning says the market is pricing in a 60% chance of lower Dollar lending rates in September. Bloomberg data show a 49% chance that the Fed Funds rate – currently at 5.25% – will drop to 4.50% by Christmas. Two-year US Treasury bond yields dropped 26 basis points last week to 4.19%.

Lower market interest rates encouraged European stocks to open around 1% higher on average today. Wall Street futures pointed to a 53-point opening gain for the Dow, as crude oil prices fell $1 per barrel on news that Hurricane Dean is set to miss the Gulf of Mexico 's major oil-producing sites.

"I imagine people are still absorbing the implications of the Fed action," says David Moore of Commonwealth Bank in Sydney , Australia . "It would have provided some support for the gold prices, certainly for investor confidence. For the week ahead, I suspect that we'll see the gold price hold mostly above $645. On the topside, I'd say, probably $667."

In the currency markets, the Dollar declines begun by the Federal Reserve's lower rates on Friday continued early Monday, with the British Pound rising to $1.9862 even as the Bank of England said that Britain's broad money supply grew by 13% year-on-year in July. Domestic credit growth hit 13.8% annualized.

The European single currency failed to rise as strongly as the Pound, however, starting the week at $1.3500 and keeping the Euro Price of Gold just shy of €488 per ounce. For British investors the metal opened the week at £331.40 per ounce, little changed from last Monday's start.

"There is still uncertainty in the markets," says today's technical gold note from Standard Bank in Johannesburg , "which should see US government bonds well bid. On Friday the yield of the 10-year US government bond was again lower at 4.68%."

With no major data releases due today, investors will be forced to consider the true cost of the Fed's lower interest rates. For while that 0.5% cut in the discount rate stemmed financial losses on Friday, growth in the cost of living has not retreated since the Fed said last month that its "predominant policy concern remained the risk that inflation would fail to moderate as expected."

Lower interest rates plus rising inflation drove investors to buy gold between 2003-2005, nearly doubling the Dollar price of bullion. A sharply higher gold price may provide comfort once again if investors begin to suffer sharp inflation-adjusted losses in both their stock and bond portfolios.

By Adrian Ash

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 , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in