Gold News

Gold Slides to New 3-Month Lows, But Fed "Must Do More" as Citigroup Asks for New Capital Injection

Gold Prices continued to slide early Wednesday, avoiding the collapse forecast by many analysts after dropping through $875 per ounce but reaching a series of fresh 3-month lows as the US Dollar rallied against the Euro, crude oil and the value of world stock markets.

"The previous low [of April Fool's Day] has been taken out and the technicals now quickly point to $850," says today's Gold Market note from Mitsui, the precious metals dealer.

"[But] the pull back in prices will be starting to get the interest of the physical players priced out of the market for so long."

The AM Fix in London today saw the Gold Price set at $867 per ounce, its lowest Fix in more than 13 weeks.

Despite reports of strong physical Gold demand from jewelers across India and south-east Asia – and even as the US Dollar pushed the Euro towards a one-month low beneath $1.5530 on the currency markets – the Gold Price in Euros also slid, dropping through €561 per ounce.

That was the top of Gold's previous surge ending May 2006. Today the price in Euros reached its lowest Morning Fix since late Dec. '07.

For British investors looking to Buy Gold today, the metal traded down to its lowest level since 7th January, some 15% below its record highs of March 17th.

"I don't think it's short selling, I think its liquidation," says George Gero of RBC Capital Markets.

"You have lower open interest [in the futures market], you have lower closing prices and you have higher [physical] deliveries than usual. And you have a fearsome Wednesday coming up."

Today the Federal Reserve will announce its latest interest-rate decision at 18:15 GMT. It's widely expected to make a "babystep" reduction of 0.25% before signaling – in its accompanying statement – the end of the cutting campaign begun in August '07.

Since the Fed's last 0.75% rate-cut in March, however, interbank lending rates have actually risen by 0.33% according to Bloomberg data.

Last night the biggest bank in America, Citigroup, announced a fresh $3 billion capital issue to add to the $40bn it's raised to defend its balance-sheet since Christmas.

"There's clearly a need for the Fed to do more,'' says Charles Lieberman, CIO at Advisors Capital Management in New Jersey and a former Fed economist.

"The underlying problem [remains that banks] are still nervous."

Also ignoring the US Treasury's outstanding $9 trillion deficit – and the United States' trade deficit of $235 billion for 2008 so far – "the sell-off in Gold can partly be ascribed to the Dollar," says today's note from Standard Bank in Johannesburg, South Africa, "after it gained ground against major currencies such as the Euro.

"However, we perceive an undertone of nervousness not entirely explained by Dollar strength, which perhaps triggered even more selling."

World stock markets also slipped this morning, ticking 0.5% lower ahead of the Fed's decision today. Government bond prices rose, meantime, pushing interest rates lower in the open market across Asia and Europe.

Base metals fell after a report from Moody's forecast lower global demand in the back-half of 2008. Food stuffs continued to rise, however, pushing corn towards its eighth monthly gain on the run.

Crude oil slid below $115 per barrel, taking its losses from Monday's new record top to more than 3.4% as the Forties pipeline came back online in the North Sea after this weekend's strike action.

Petroleum staff in Nigeria may return to work later today, bringing another 860,000 barrels per day back on-stream.

Meantime in the Gold Market, new mining supplies from Zimbabwe – formerly the world No.18 in terms of annual output – fell by 61% last month from February, reaching just 0.3 tonnes.

China's gold output, in contrast, grew by almost 8% during the first three months of the year according to the Interfax agency, reaching 60.6 tonnes.

Overtaking South Africa as the world No.1 in 2007, however, China has in fact seen its output hold steady since 2005.

It's the collapse in US, Canadian, Australian and particularly South African output that has moved China into pole position as the world's biggest gold mining nation.

Today Gold Fields – the fourth largest gold mining company in the world – said four workers have died this week in separate incidents at its Driefontein and South Deep gold mines.

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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.

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