Gold News

Gold Price Ticks Up from 4-Month Low as Analysts Turn Bullish on Dollar, Bearish on Euro

Gold ticked higher from a four-month low early Friday, adding 0.9% to $855.90 per ounce before giving back $3 in London as world stock markets rose sharply and bond yields fell.

Base metal and soft commodity prices slipped once again. Crude oil bounced 1% after sinking to $110 per barrel yesterday – a three-week low – on news of Turkish air-strikes against Kurdish rebels hiding in Iraq, home to the world's third-largest oil reserves.

But little terror premium reached the Gold Market, however. Instead, "we're seeing margin selling and liquidation," as George Gero of RBC Capital Markets said to the Chicago Board of Trade late Thursday.

"We're having a general liquidation in commodities, mainly due to the strength in the Dollar and a better outlook in the credit markets and the stock markets."

Ahead of today's Non-Farm Payroll data from the US Labor Dept. – expected to show the second monthly loss of almost 80,000 jobs in April – the Dollar rose to its best level since late Feb. against the Japanese Yen.

The Dollar also held the Euro – often linked closely to daily moves in the Gold Price – at a five-week low beneath $1.5450.

In the Gold Market, today's commitment of traders data from the US Commodities Futures Commission "should give a clearer indication of the nature of selling pressure," note Walter de Wet and Manqoba Madinane at Standard Bank.

But for currency traders, "the outlook for the Eurozone has worsened significantly within the space of one week," says Carsten Brzeski at ING Capital Markets. "Sound economic fundamentals are melting away."

Europe-wide, manufacturing activity held flat in April on the PMI index. New data this morning said German consumers slashed their retail spending by 6.3% in March from the month before.

"The old temptation of government to find a culprit for their problems has returned," warns Alexandre Lamfalussy, president of the European Central Bank's fore-runner before currency union in 1999.

Pointing to demands for lower ECB interest rates from Silvio Berlusconi and Nicholas Sarkozy – the Italian and French heads of state – "it is a wider problem than one or two political leaders," he told the New York Times on Wednesday.

Bloomberg today reports a survey of economists that says ECB interest rates will fall from 4% to 3.5% by Christmas.

For European investors looking to Buy Gold today, the slide in the single currency kept the physical gold above €550 per ounce. But the Dollar's 5% rally against the world's other major currencies over the last week "has weighed" on Gold Prices, says Kevin Norrish at Barclays Capital, because economists believe the Federal Reserve's rate-cut on Wednesday "[will be] the last Fed rate cut in this cycle."

Even if that were to prove true, however, the Fed remains a long way from raising rates, despite offering US cash savers fully 2% less than the current rate of consumer-price inflation.

And long-term, such negative real rates of interest are typically bullish for Gold. (Read more about Second-Guessing the Fed here...)

Studying the short-term technical picture, "Gold's not looking cheap," reckons Nicole Elliot, a senior analyst at Mizuho in London. "It's got more to go."

"Investors are rather waiting to get out of gold rather than wanting to get in," agrees Narayan Gopalakrishnan at MKS Finance in Geneva, adding to the wave of bearish comment today.

But following the May Day shutdown in Europe's financial markets yesterday, "London is heading into a long [three-day] weekend. After such sharp falls it is certainly possible that these markets could bounce back as the longer-term trend lines are still well intact."

Meantime in India – the world's biggest single market for gold bullion and jewelry – physical demand was strong today according to Reuters.

Next week's Akshaya Thrithiya festival, celebrated across southern India, marks the biggest gold buying season outside the post-harvest festival of Diwali in October.

"Demand is good as the [consumer] market is seeing Gold Prices fall," one wholesaler in Bangalore told the newswire.

Local prices held just above 11,000 Rupees per 10 grams on Friday.

The Indian government said today that inflation in the cost of living hit a near four-year high in April above 7.5%.

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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.

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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