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Commodities / Gold & Silver 2009 May 01, 2009 - 06:58 AM GMT

By: Adrian_Ash

Commodities

WHOLESALE PRICES for physical gold slipped to an eight-session low early in London on Friday, dropping 4.1% from Monday's start before rallying to $885 an ounce as the US Dollar also bounced on the currency markets.


The Gold Price in Euros headed for its worst weekly finish in four after the single currency broke above $1.33, while the Frankfurt and Paris bourses were closed for May Day.

In Japan – where new consumer-price data today showed a drop back into deflation – the Nikkei index ended Friday 3.1% better from Monday, and 10% stronger from April 1st. Tokyo is now closed until Wednesday for Golden Week.

And ahead of the long Bank Holiday weekend here in London, the FTSE100 held near its best level since mid-Feb., up 20% from mid-March's six-year low.

"It is difficult, but not impossible, to argue that we are in a new bull market" for stocks, says market-historian and sentiment-analyst Mark Hulbert at MarketWatch.

"[But] it is more likely that we're in a bear-market rally."

"Although we are not (yet) witnessing a US Dollar crisis," writes Stern Business professor Nouriel Roubini under the moniker "Doctor Doom" in Forbes magazine, "the Bretton Woods II system is still at the center of the debates on the origins of this financial crisis.

"Stimulus spending by trade-deficit countries such as the US and UK will only accentuate pressure on global fiscal deficits and imbalances," says Roubini, while "Chinese concerns about the long-term value of its US assets have increased," leading it to raise the share of gold in its vaults "from a very low share of total assets."

Now standing 75% higher from 2003 at 1,054 tonnes agrees Wolfgang Wrzesniok-Rossbach in the latest Precious Metals Weekly from German refining group Heraeus, "China now has the fifth biggest gold reserves in the world, but even that is only 1.5% of the country’s currency reserve."

Pointing to this week's comments from Nout Wellink of the European Central Bank, "the Dutch member of the ECB board announced that there would again be an agreement to regulate the member central banks' gold activities" when the current deal – signed in 2004 – expires this coming Sept.

"However," Wrzesniok-Rossbach adds, " one has to wait and see what this agreement will look like – whether the IMF, with its Gold Sales plans will be a signatory, and whether the central banks who are already finished with their sales (e.g. Switzerland) will again be part of this.

"It will also be interesting to know the annual quantities that will be available for possible sales. [Because] in the current year of the existing agreement, the central banks have so far sold a mere 91 tonnes from an possible annual maximum of 500 tonnes."

Back in the spot market today, the technical outlook for Gold Prices puts support at $880 according to Mitsui analysts in London, with resistance at $900 an ounce.

Looking at the monthly charts, "The correlation between oil and Gold Prices has been extremely high since 2004 and has only just begun to come down," says Phil Smith for Reuters Technical India.

"If you are looking for more substantial upside on gold, note that the last time this correlation broke down was during the 2000 to 2003 stock market sell off."

Today in the debt markets, US Treasury bonds slipped once again, even as Japanese and UK government bonds ticked higher.

The Federal Reserve bought $3.0 billion of Treasuries in the open market as part of its $1.25 trillion "Quantitative Easing" on Thursday, but 10-year bonds still fell, pushing the yield up to a five-month closing high of 3.11%.

Ahead of next week's European monetary-policy meeting, "The ECB has spent a long time pondering its next move on non-standard easing," says Steven Barrow for Standard Bank in a note today.

"For once, we want to lean with the view that the ECB just might deliver a bit more than the market expects – and deliver a weaker Euro into the bargain."

By Adrian Ash
BullionVault.com

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 www.BullionVault.com , 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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