Gold in "New Bull Market Upward Phase"; Holds Key Highs vs. Dollar, Euros & Sterling

By: Adrian_Ash

SPOT GOLD PRICES ticked lower during Asian trade on Wednesday, just dipping below $680 at the opening in Europe but recording the highest AM Fix in London since July 24th – nearly 0.9% above yesterday's start – at $679.50 per ounce.

Gold also held at yesterday's highs against the Euro and British Pound, but it slipped back from Tuesday's three-week high against the Yen, as the Japanese currency rose on the forex market.

"Many things are pointing in a positive direction for gold. The market is in a new upward phase," said one Tokyo analyst to Reuters earlier.

"Gold is drawing a lot of seasonal [Indian] demand now. Confidence remains in the market after seeing long-term funds stay in gold despite seeing the turmoil in financial markets."

"Funds seem to have renewed interest in gold now," agrees Ellison Chu, head of precious metals for Standard Bank in Hong Kong . "The prospect of a weakened Dollar might be a reason."

The US Dollar held steady early Wednesday, but interest rate futures continue to put the chance of a cut in the returns paid to Dollar savers at 100% when the Fed meets on Sept. 18th.

Further pressure on US interest rates came yesterday, when new data showed US construction spending falling 0.4% in July from June. Economists had expected no change. Today at 10:00 EST brings Pending Home Sales data for July, expected to show a 2% fall from June's 5% increase.

Before that, the ADP employment report at 08:15 EST will foreshadow the official US unemployment data due Friday. The Fed's monthly Beige Book of key statistics and analysis follows today's London close.

Already this morning, German and UK data releases have shown the service sector in both countries growing faster than forecast in Aug. But that news failed to prevent a 0.5% dip in Europe 's major equity indices, and it did little to reverse the Dollar's two-day rally against Euros and Sterling . They continued to trade below $1.36 and $2.01 respectively as growth in Eurozone retail sales was reported sharply below forecast for July, adding to speculation that the European Central Bank will choose to keep its interest rates on hold tomorrow.

In the gold market, The Euro Price of Gold held steady above €500 per ounce, after leaping to a 16-week high on Tuesday. For British investors wanting to Buy Gold Today , gold traded in a tight range around £338.50.

"[August delivered gold's] third highest monthly close ever," notes Christopher Langguth in today's TechniChris note for Mitsui. "In 1980 the January close was $681.50, $1 higher than April 2007."

The Gold Market ended last week at $672 versus the Dollar. It's since gained more than 1.5% against both Euros and Sterling .

"The immediate objective [now] is the recent high at $692.50," says Langguth, "followed by last year's high, $723. The Gold Price would have to fall below $640 to turn the monthly trend down."

Today in Tokyo , gold futures traded for delivery in Aug. '08 gained 0.7%, while the Nikkei stock-market average fell 1.6%, led lower by property shares. Reuters also points to aggressive sales of stock-index futures, as investors sought to square their positions before the first-half of Japan 's financial year ends on Sept. 30.

Over in India , gold sales to the jewelry sector – now enjoying its strongest season of the year – slowed dramatically after the overnight jump in New York prices. "Demand for gold has almost stopped," said Harshad Ajmera, head of J.J.Gold House in Kolkata to Reuters. "People expect a fall...They will wait for two to three days."

He says Indian buyers were looking for a pullback worth $4 per ounce from gold's current six-week highs.

"By most measures gold is now overbought, at least from a short-term perspective," says Phil Smith for Reuters India. "So it's not unreasonable to expect some consolidation from a technical standpoint."

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 2007

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