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Asian Stock Markets and Crude Oil Dips as Gold Rallies

Commodities / Gold & Silver Jan 07, 2008 - 07:31 AM GMT

By: Adrian_Ash

Commodities THE SPOT GOLD MARKET bounced from a 0.7% dip early Monday, reaching $861 per ounce by lunchtime in London as crude oil prices slipped on forecasts of warmer weather in Britain , Europe and the north-eastern United States .


"The prospect of [further] Fed rate cuts and inflation shocks going forward spell a constructive outlook for the Gold Price in our view," said Michael Lewis, head of commodities research at Deutsche Bank in London , in his weekly note today.

"The main event risk in our view is the tendency of the US Dollar to display seasonal strength during the first four weeks of a new year."

Bang on cue, the Euro dropped this morning to a three-session low of $1.4660, threatening the uptrend it first began just before Christmas. The British Pound, meantime, continued its nine-week slide to dip below $1.9700 for the first time since August.

Losing value for the last six months on its trade-weighted index, the Pound ended last week at its lowest level since Oct. 2003. The Gold Price in Sterling finished at a new all-time record above £436 per ounce.

For French, German and Italian investors wanting to Buy Gold right now, the price bounced back above last week's close early Monday, reaching €586 per ounce as Europe 's major stock markets ticked 0.3% higher.

The Dax, FTSE and Cac had earlier opened the day flat after Asian shares fell hard, led down by electronics manufacturers. Taiwanese stocks lost 4% at one point, beating the Nasdaq's 3.8% loss in New York on Friday. Japan 's Nikkei ended the day 1.3% lower.

At the Tocom futures exchange in Tokyo , gold for delivery in Dec. '08 slipped 0.4% to equal $865.98 per ounce.

"A stronger Yen was weighing on Tocom, Gold Prices ," said one senior trader to Reuters overnight as the Japanese currency moved back toward ¥109 per Dollar, the 30-month high first hit at the start of last month.

"The Yen also put pressure on overall [financial] prices," he added, while "weak oil prices also pressured gold. But you really cannot sell gold heavily as many investors want to hold gold for safe-haven purposes due to geopolitical tensions."

Iran yesterday expelled a German diplomat believed to be involved in negotiations over Tehran 's nuclear ambitions. President Musharraf of Pakistan today admitted that former-president Benazir Bhutto may have been shot, rather than dying after banging her head on the roof of her car.

On the Afghan border, eight tribal leaders – said to be friendly to Musharraf's regime – were murdered in two separate attacks in the Taleban stronghold of South Waziristan overnight.

On the data front, meantime, Eurozone consumer confidence fell faster than expected in Dec., said the European Commission today, while Producer Price Inflation in the 15-nation currency union rose at 4.1% in Nov.

More than twice the rate of six months ago – and ahead of analyst forecasts – rising input inflation for European businesses comes after Friday's news of all-time record high price increases consumers in the Eurozone.

But when Jean-Claude Trichet, head of the European Central Bank, spoke just before the New York open today, he was expected to comment instead on the interbank lending market, near-frozen since the credit crunch first bit in August. Last month the ECB led five of the world's largest central banks – including the US Fed – in a co-ordinated injection of half-a-billion Dollars into Europe 's money markets with a series of short-term loans.

As a result of this concerted action, three-month interest rates for borrowing Euros have fallen from a seven-year high of 4.95% to 4.63%. But that remains well above the ECB's target rate of 4.0%, and the best policy-makers can do today is "[breathe] a collective sigh of relief that the year ended without a total meltdown," reckons James Nixon at Societe Généralé.

"Bearing in mind the weight of cash central banks have thrown into the market, the impact has been limited," agrees Ken Wattret at BNP Paribas, also in London .

"The only thing that will solve this [credit crunch] is time."

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 2007

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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