Gold News

Gold Dips on Strong US Inflation Data, But Fed Still Set to Slash Rates Next Week

Gold Prices gave back an early $4 rally in London on Friday, slipping beneath last night's new record close as the US Dollar bounced almost 1% from Thursday's all-time lows on strong inflation data.

The futures market remained unanimous, however, that the Federal Reserve will cut the returns paid to US Dollars another 0.75% to 2.25% when it meets next Wednesday.

New data also showed inflation in the European currency zone reaching a record pace of 3.3% per year in Feb.

Crude oil meantime dipped and European stock markets held flat.

"The financial system's in trouble at the moment and people are going to the safety of Gold," reckons Mario Innecco, a broker at MF Global in London. "You can't create gold so easily as you can create Dollars or Euros or Pounds."

The surging world money-supply has created a "real fear" of inflation says Bernard Sin, head of gold trading at MKS Finance in Geneva and also speaking to Bloomberg today.

"People are trying to hedge against [inflation] by Buying Gold."

Friday morning also brought the latest data on US consumer price inflation, now pegged at 4.0% annually in Feb., just below Jan.'s two-year record.

The consumer confidence report due out at 09:00 EST was forecast to show a 16-year low.

US Treasury bonds continued to rise in early European trade, pushing the annual yield offered to new buyers still further below the rate of consumer-price inflation. So one day after the Gold Market came within 25¢ of $1,000 per ounce, "it is just a matter of time before the four-digit hurdle is history," says the latest Precious Metals Monthly from the analysts at Virtual Metals in London.

"For the Gold Price not to break through $1,000 per oz in March, some clear signs are needed that US fiscal measures to avert recession are working. Of that there is zero hope." (One private gold investor – and only one – managed to Sell Gold for $1,000 yesterday. Read on here...)

Raising its 12-month target for spot Gold to $1,500 an ounce, Virtual Metals see silver gaining only 35% by early 2009 while platinum stands still.

But the consultancy still holds that the Gold Market will then collapse, falling to an average of $500 per ounce to lose half its Dollar-value by 2013.

"Indian imports have [often] been weak at times of high price volatility over this bull market," it explains, "but if demand does not return when the price stabilizes it would suggest we are nearing the top of what the market can bear."

Bernard Sin at MKS Finance agrees that global jewelry demand "has been very quiet lately." He forecasts a 10% drop in the Gold Price between April and July.

In India – which accounts for one-fifth of all private gold sales in the world – the spot price drifted lower from Thursday's new record of 12,965 Rupees per 10 grams today.

"Long-term investors should wait and watch for the Euro’s reversal," advises Shailendra Kakani of Commodity Research Group in Mumbai, adding that the European single currency "is dictating the price of every commodity" right now as the US Dollar plunges to new record lows each day.

"Invest in Gold when the metal is in the range of Rs 11,500-12,000 per 10 grams," says Kakani.

Raghavan Sunderajan, an analyst at Kotak Commodity Services, believes Gold "may touch $1,020 per ounce, followed by a correction. These high levels are likely to be witnessed within the coming week in expectation of the 75-basis points interest rate cut due from the US Fed [on Weds]."

Bombay's Sensex stock index today recovered 403 of Thursday's 770-point loss, ending the week 1.4% down from last Friday's close.

The Nikkei in Tokyo dropped another 1.5% to finish at its lowest level since August 2005.

Japanese traders told Reuters that "nobody was buying" because of the fast-approaching year-end of March 31st, plus anxiety over who will succeed Toshihiko Fukui as governor at the Bank of Japan.

"Given the current world financial market turmoil, the fact that his successor has yet to be chosen is pretty bad," Koichi Ogawa, portfolio manager at Daiwa, said to the newswire.

Pointing to the Japanese Yen's current 12-year highs to the Dollar – which are crimping exports in the face of Dollar-pegged competition from south-east Asian economies – "I don't think central banks will intervene in the market," he went on.

"But this is a time when the central bankers need to be in close touch with each other, so not having a [BoJ] governor really doesn't look very good."

How best to Buy Gold today? "If there's an easier route to buying investment gold, I have not found it," says one BullionVault customer. Find out for yourself and start Investing in Gold here...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are 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. Please review our Terms & Conditions for accessing Gold News.

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