Gold Holds Steady as Wheat & Oil Rise; "Busy Autumn" Ahead, Warns Analyst

By: Adrian_Ash

SPOT GOLD PRICES traded in a $2 range early Monday, dipping below $672 per ounce in Asia before regaining Friday's three-week high in London.

New York is closed today for the Labor Day holiday.

"In Asia the gold market is primarily driven by physical buying and physical demand has slowed down at this price level," said Ellison Chu at Standard Bank Asia in Hong Kong to Bloomberg earlier.

Gold demand in India , the world's hungriest gold market, is set to rise strongly this month – perhaps up to 50% above last year's levels, according to the World Gold Council. But overnight, "overall trading has been very quiet and is likely to stay this way for the rest of the day as the US is closed," noted Chu .

Spot Gold Prices against non-US currencies were mixed, with the Yen price of gold rising slightly as the Japanese currency slipped to ¥116 per Dollar. Gold priced in Euros dipped 0.3% to €492.50 per ounce.

For British investors wanting to Buy Gold Today the mid-price began Monday in London at £333.50 – gold's highest weekly opening since May. The Sterling price of gold then dipped as the Pound rose following news that British manufacturing grew faster than expected in August.

Falling interest rates tend to be good for gold if inflation doesn't also recede, and although yields on 10-year UK government bonds rose one point this morning to 5.05%, they began last week at 5.09%. The 10-year gilt yield has now dropped nearly half-a-per-cent since the start of July, while US bond yields have fallen at their fastest pace since the 9/11 attacks of 2001.

"I don't think the subprime problem has been resolved and the market's concerns stay, but the US president and the Fed clearly relieved the market [on Friday], which helped lift gold," says Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo .

"We've seen volatility in financial markets, but investors are aware of the fact that gold has been solid during the time, so they are willing to buy gold on dips."

Japanese gold futures for Aug. '08 delivery rose 0.6% at the Tocom today, while the Nikkei stock-market index dropped another 0.3%. It ended Monday's session more than 4% off its starting level of Jan. this year, following news that capital expenditure by Japanese corporations fell sharply – down by nearly 5% against the rise forecast by Tokyo analysts – between April and June.

Looking ahead, this week brings European economic growth and US manufacturing data tomorrow (Tues). Interest-rate decisions are then due from the Bank of England and the European Central Bank in Frankfurt on Thursday. After signaling further hikes to dampen consumer-price inflation earlier this summer, neither central bank is now expected to alter their current rates for fear of stalling a recovery in financial markets.

Seventeen out of 32 professional gold dealers and analysts surveyed by Bloomberg News forecast a third week of rising gold prices. Only four advised selling gold after it rose 2.8% last week. Eleven analysts were neutral.

Global wheat prices meantime reached a fresh record high this morning on reports that Russia , the world's fifth-largest wheat exporter, may introduce a sales tariff to curb overseas shipments. Wheat prices in Chicago rose 25% in Aug., as India and Egypt moved to stockpile supplies ahead of what's set to be a very poor harvest.

Crude oil prices also rose this morning, nearing a four-week high after Hurricane Felix – now heading for the southern Gulf of Mexico – was upgraded to "Category Five", the strongest rating possible.

In the gold mining sector, where equity valuations on the Amex Gold Bugs index have dropped by nearly one-fifth since mid-July, South Africa 's largest producers finally signed a new wage agreement with the country's three largest mining unions, providing for pay increases of up to 8.5%. Short-term, gold prices may also react to a strike at the huge Lihir mine in Papua New Guinea .

As for the broader financial markets, "this is going to be a busy autumn," says John Dizard in today's Financial Times. "Snapback rallies will destroy your short [equity] positions, and unexpected writedowns will shatter rock-solid value plays turning them into sand."

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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