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Gold Drifts as Stocks Ignore Horrific Deflationary Economic Catastrophe

Commodities / Gold & Silver 2009 Apr 30, 2009 - 08:07 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD was driven sharply lower at Thursday morning's Gold Fix in London, dropping 1.2% to a one-week low of $889 per ounce as world stock markets continued to rise.

Government bond prices ticked down, and the US Dollar reversed an early drop on the currency markets.

Trading at £598 an ounce, the Gold Price in Sterling meantime unwound this year's entire gains-to-date, standing at a 15% discount to mid-Feb.'s record high.

"Bonds and currencies seem stuck in narrow ranges right now, and we should not be surprised by this," says Steven Barrow at Standard Bank here in London.

"The main driver of currencies, bonds and curves, is policy rates and these are stuck close to zero."

Both "Gold and silver are [also] in the middle of large consolidation patterns," says today's precious-metals note from Mitsui.

"Activity may remain muted until this is broken."

Late Wednesday the Federal Reserve announced no change to its 0% stance, vowing again to squash open-market and longer-term interest rates by buying $1.25 trillion of mortgage-backed bonds by Christmas, plus $300bn of Treasury bonds by autumn.

"Gold [this week] broke back down below our key technical pivot at $900," says a technical note from London market-maker Scotia Mocatta, "triggering stop losses.

"That break back below $900 has cancelled [our] double-bottom call for $934. We are neutral, with first major support seen at $866" – the April low hit three times mid-month.

Climbing meantime for the 14th session in twenty, Germany's Dax index today hit its best level in 16 weeks, despite the Berlin government forecasting a 6% recession for 2009 across the world's third largest economy.

New data also showed Germany shedding a quarter-million jobs so far this year, outstripping analyst forecasts by 15% and helping take unemployment across the 16-nation Eurozone to a 40-month high of 8.9% in April.

Calling the latest Eurozone money-supply data "a catastrophe", Prof. Tim Congdon of International Monetary Research says "Company bank deposits have been falling at 1% a month since December...[just as] happened in the US during the Great Depression.

"It is why we are seeing such a horrific recession in Europe now."

Japan also slashed its 2009 growth forecast today, predicting shrinkage of 3.1% in the world's second-largest economy, with retail prices falling a further 1.5%.

"I think we're in the beginning of a bull market," said Sumner Redstone, executive chairman of US media giant CBS Corp. to Larry King on CNN last night.

"When a bull market begins, nine months later the economy turns around. [Wednesday's US] news was extremely bad on GDP, but the market went up. In a bull market, the market ignores bad news.

"It's clear in recent times the market is looking for a bottom."

Early rumors this morning said the $6.9bn talks between US Treasury officials and creditors of auto-giant Chrysler – aiming to avoid its bankruptcy – broke down overnight.

Yesterday Bank of America shareholders voted out Ken Lewis as chairman – but he remains CEO for now – while in Brussels, European politicians put forward strict new regulations for "alternative investments" including commodity, private-equity and hedge funds.

Over in China, in contrast, Hong Kong regulator the Securities & Futures Commission said it wanted an increase in short-selling – whereby bearish traders bet on stock prices falling by borrowing shares to sell them.

"Short-selling facilitates activity by professional investors and increases trading in the Hong Kong market," said commission CEO Martin Wheatley, quoted by FinAlternatives.

"Without short-selling, this additional activity would disappear."

Back in the gold market, "I am for IMF Gold Sales only if it allows $4 billion for poor countries," said senior US Democrat Barney Frank on Wednesday.

As the largest single International Monetary Fund sponsor, the United States holds a casting vote in key IMF decisions such as the proposed 403-tonne sale of gold.

Over on the demand side, meantime, Monday's Akshaya Thritiya festival – celebrated across southern India – saw gold sales slip just 8% from last year's figure to 45 tonnes, the World Gold Council marketing-group said today, rather than the 20-40% drop reported by many local jewelers.

India imported 15 tonnes of metal in April, adds the Bombay Bullion Association, almost all of it needed to meet Gold demand for this week's auspicious Hindu festival.

"The figures are positive," says WGC India director Ajay Mitra, speaking to Reuters.

"One should remember that Akshaya Tritiya lasted for two days last year. In 2009, one should also look at the overall economic performance."

By Adrian Ash

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 , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is 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.

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