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Gold Correction Over

Commodities / Gold & Silver Jun 06, 2008 - 09:06 AM GMT

By: Adrian_Ash

Commodities THE PRICE of SPOT GOLD rose more than 1% in London 's morning session on Friday, regaining last week's closing level of $888 per ounce as crude oil added to Thursday's record 5.4% jump.

European stock markets held flat, meantime, while corn prices reached new record highs on news of heavy rains and flooding in the US mid-west.


"I think we are still in a range of $850 to $900 for the time being," said one Hong Kong gold dealer to Thomson-Reuters overnight.

" Gold has been going through a corrective phase," says the latest Precious Metals Monthly from Standard Bank in Johannesburg . "The market is mixed, but [we] may see gold preparing the ground for renewed increases later in the year."

"I think for the moment," adds David Moore at the Commonwealth Bank of Australia in Sydney , "the US Dollar remains somewhat fragile.

"[So] I think there's still a possibility for Gold to get higher in the near term."

On the currency markets this morning, the Euro held onto its sharp gains near $1.5600 despite news that Germany 's industrial output slipped 0.8% in April from March.

An index of so-called leading indicators compiled by the Organization for Economic Co-Operation & Development (OECD) then confirmed an economic slowdown across the 29-nation European Union (EU), falling 3.5% from this time last year.

The Gold Price in Euros this morning neared last week's close just above €570 per ounce.

The economic slowdown comes amid a sharp upturn in new loans to non-financial businesses, now growing by almost 15% annually.

"Another $15 on top of the record oil price could be the matter of a week away," says Gerrit Zambo, an oil trader at Bayern Landesbank in Munich , Germany .

"It's mainly driven by financial players as the Euro gets stronger again."

Morgan Stanley also says oil prices could reach $150 per barrel, perhaps by Independence Day on July 4th. Thursday's record jump in crude oil prices was followed by a further 1.9% gain this morning to break $130 per barrel once again.

The Euro jumped Thursday after Jean-Claude Trichet, president of the European Central Bank, said the ECB may choose to raise interest rates in a bid to counter decade-high inflation.

Trichet's comments came after Ben Bernanke, chairman of the Federal Reserve, hinted that US interest rates may not go any lower from their current 2.0% – now only half the rate of even official consumer price rises.

( Read more about The Fed's Tough Talk here... )

Today brings the much-awaited Non-Farm Payrolls report of US employment for May. Wall Street economists forecast a 60,000 drop, taking the US jobless rate up to 5.1%.

"Inflationary pressures are an increasing issue, not just in the advanced countries, but also in many emerging markets," said Masood Ahmed of the International Monetary Fund (IMF) on Thursday.

The central banks of both Indonesia and the Philippines yesterday raised their interest rates, and Malaysia is expected to follow suit soon.

The Reserve Bank of India says it may hike its key lending rate as early as next month to counter 8% inflation in prices.

Here in London , however – and despite rising consumer prices and growing public-sector demands for inflation-busting wage increases – the Bank of England is being asked to follow its latest "no change" decision with a rate cut, adding fresh pressure to the British Pound's exchange rate.

The New Zealand Dollar dumped 2% on Wednesday this week after Reserve Bank governor Alan Bollard said he's "likely" to cut interest rates to help support the country's own "housing market bubble".

If the UK economy now slows further, "there would be a compelling case for rate cuts later in the year," reckons Michael Hume at Lehman Bros. The British Retail Consortium says the Bank of England "must not close the door on more reviving rate cuts."

Citing the lowest new UK mortgage approvals on record, the Royal Institution of Chartered Surveyors agrees, asking for "a looser monetary stance in the near future...to boost liquidity in the banking system."

The British Pound today mapped the US Dollar's moves on the currency market, slipping to a nine-session low against the Euro.

The Gold Price in Sterling spiked to a three-session high of £455 per ounce before holding 1% above last week's close at £452.50.

Over at the Tocom gold exchange in Tokyo – which is looking to expand its range of "mini-gold" futures contracts to meet strong demand from private investors – prices rose 1% today, closing the week above ¥3,000 per gram.

Gold Prices first broke that 24-year high for Japanese investors back in Nov. '07.

Trading in China 's gold futures market is also set to increase after HSBC became the first foreign bank to gain access to the Shanghai Gold Exchange (SGE) on Thursday.

"It is an exciting policy to allow overseas banks access to China 's Gold Market ," said a spokesman for the SGE to the China Daily.

"A closer tie between China 's and the global market is expected to be established."

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 2008

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

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