Gold Tumbles and UK Slips into Wage Deflation
Commodities / Gold and Silver 2010 Jan 21, 2010 - 08:12 AM GMTBy: Adrian_Ash
THE PRICE OF GOLD dropped for the second day running in London on Thursday, taking this week's loss to almost $30 per ounce before bounce off 3-week lows at $1102.50.
Emerging-world stock markets shed another 0.8%, while commodities steadied but the US Dollar extended its 5-month highs against the Euro.
"With gold breaking out of the lower end of its recent trading range, we now find it difficult to see major upside for the metal in coming weeks," says Standard Bank's Walter de Wet.
Noting that China's New Year demand could buoy prices until the middle of Feb., "Our physical flow index has indicated higher buying interest than [for] the same period in 2009," says de Wet.
"This is bullish. [But] while we believe gold will test new highs in the second-half of 2010, recent developments in financial markets...seem to advise caution on gold for the next few weeks."
European equities ticked higher today from Wednesday's near-2% losses, but new data showed the UK suffering a sharp drop in its money supply for Dec., the worst deflation on record at £22 billion ($35bn).
Coming after a raft of data pointing to Deflation in Wages but Inflation in Prices, the news sent gilt prices higher, but the Pound dropped another 1.5¢ to lose 2% from Tuesday's 6-week high vs. the Dollar.
UK investors wanting to buy gold today saw the price hold above £682 per ounce, a greater than 5% discount from last week's near-record highs.
The Euro currency meantime bounced from a new 5-month low to the Dollar, but gold priced in Euros continued to slip.
Pulling back to its lowest level this week, the gold price in Euros traded some 2% below yesterday's brief break above €800 an ounce.
"We believe the risk is for further downside price action while [gold] holds below $1120," says Scotia Mocatta's daily technical analysis.
"It remains to be seen whether this will be a buying opportunity for investors awaiting a chance to enter, or if we will test the next important barrier at $1100," says Swiss refining group MKS in a note.
"Gold has been driven by Dollar moves recently, and hasn't been able to play to its safe-haven status as investors shift their attention onto platinum-group metals," says Steven Zhu, chief trader at Shanghai Tonglian Futures, speaking to Bloomberg.
"Gold had a good run last year and needs to consolidate those gains."
Now the world's No.1 private consumer of gold, China recorded GDP growth of 8.7% for 2009, beating analyst forecasts.
Recent moves to curb Chinese bank lending, however, mean global investment sentiment "has flipped" from China back to the US, a Bloomberg survey reports.
Nearly three in 10 respondents told the newswire that China faces the greatest risk of a sharp market drop in 2010, "ranking it the second-riskiest market behind the European Union."
As recently as Oct. '09, some 44% of investors asked ranked China their favorite market. Now 62% say its boom has switched to a "bubble".
Meantime in India – formerly the world's largest private buyer of gold – 2010's gold buying "will certainly exceed" last year's two-decade low of 343 tonnes, said Suresh Hundia, president of the Bombay Bullion Association, in an interview today.
"Scrap sales will not be the same as last year," Hundia said, estimating 2009's jewelry recycling at 200 tonnes. "The shortfall will be made up by fresh imports...depending on prices."
By Adrian Ash
BullionVault.com
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Formerly 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 2010
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