Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Gold Falls with Stocks, Crude Oil and Bonds

Commodities / Gold & Silver 2009 Oct 21, 2009 - 08:15 AM GMT

By: Adrian_Ash


THE PRICE OF GOLD fell hard as the US Dollar bounced in London trade Wednesday morning, dropping back to $1050 an ounce.

World stock markets also fell, down 1.0% from Tuesday's new 2009 highs, while crude oil slipped $1 per barrel from yesterday's 12-month highs above $80.

Government bonds also fell, pushing yields higher.

The Gold Price in Sterling meantime slumped to a two-week low of £634 an ounce – more than 6% below last week's near-record high – as the British Pound rose on news the Bank of England voted unanimously at the start of this month to maintain, but not extend, its Quantitative Easing program.

"Support at $1042 provides the bottom for [Gold] for now," says one London dealer in a note.

"Resistance lies at the previous high of $1072, with plenty of talk of option-related barriers at $1075."

"Gold scrap is still entering the market," says Standard Bank's Commodities Daily, "and gold is meeting strong resistance on approach of $1,070.

"Should the Dollar show a bit more strength, there could be a downward correction towards $1,040 in the Gold Price...However, buying price dips remains our strategy.

"The most important driver of the Gold Price is the real Fed [interest] rate," says Andrew Garthwaite, equity strategist at Credit Suisse in London, in a new report.

"If the inflation-adjusted Fed Funds rate is below 2%, the Gold Price tends to rise."

Low to negative real rates of interest are the common denominator between this decade's four-fold rise in Gold and the massive bull run of the 1970s.

Yesterday Janet Yellen, policy-making president of the San Francisco Fed, told reporters that "[raising rates] is not something I anticipate happening over the next several months. Certainly not."

Adjusted for inflation, the Federal Reserve's target rate has averaged just 0.4% so far this decade. That compares with an average of 3.3% during the 1980s and '90s.

Gold lost four-fifths of purchasing power over that time. US equities rose 15 times over.

"There is nothing to make me say gold shouldn't be trading somewhere between $750 and $850 over the next 12 months," reckons Nicholas Koutsoftas, a portfolio manager at General Electric's $40 billion pension fund, speaking to Reuters.

GE's pension fund currently holds less than 1% of assets in commodities.

"Gold is one commodity which I have a hard time trying to derive a proper valuation for, based on its non-fundamental factors. It is viewed as a hedge against a weak US Dollar, or rising inflation.

"We use the marginal cost of supply as a measure to understand a commodity's fair value, and with gold, the marginal cost of supply is significantly lower than the $1,000 an ounce gold is currently trading above."

The chairmen of Shandong Gold, Shandong Zhaojin and China National Gold Group Corp – which accounts for one-fifth of China's annual output – said they plan to increase investment, want to improve mining technology, and expect price to continue rising amid the current "financial tsunami".

Leaders from three of China's largest Gold Miners all pointed to higher prices ahead on the second day of a conference in Tianjin on Tuesday, reports John Chadwick of International Mining magazine at Mineweb today.

Now the world's No.1 producer of newly-mined gold, China overtook India as the No.1 private buyer during the first 6 months of this year.

"Currently, China and Japan, which together control 43% of foreign exchange reserves, have only 2% of their reserves in gold, while Russia holds 4% of its reserves in gold," writes Garthwaite at Credit Suisse. "This contrasts with Europe and the US where 70% and 79% of reserves are in gold respectively.

"Were Japan and China to decide to hold 10% of their reserves in gold, we calculate they would have to buy $250bn worth of gold – which at the current price of $1,050 is equivalent to 6,700 tonnes, or 2.8 times annual gold mine supply."

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.

Adrian Ash Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules