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Gold Falls with Euro, Stock Markets, Crude Oil & US Jobs

Commodities / Gold & Silver Oct 03, 2008 - 09:46 AM GMT

By: Adrian_Ash

Commodities SPOT GOLD PRICES fell hard into the Wall Street opening on Friday, losing 2% to reach a new two-week low of $824 an ounce as Asian stock markets closed sharply lower.

European shares reversed earlier gains. Crude oil slid back to $94 per barrel.


German Bunds continued to surge, pushing yields sharply lower in anticipation of a cut to Eurozone interest rates as early as November, and US Treasury bonds also pushed higher, sending 3-month yields down to just 0.52%.

The House of Representatives is expected to approve the $700 billion Banking Bail-Out – financed with a fresh flood of Treasury debt, to go with the $10 trillion already outstanding – later today.

"An easing of the financial crisis could see Gold Prices fall back, but the proposed remedies all seem very gold-friendly," as the latest Asian Metals Monthly from Fortis – the troubled Belgian bank – puts it.

Thursday saw Gold Bullion drop almost 11% from Monday's ten-week high of $925 per ounce, as the US Dollar soared on the currency markets thanks to a loss of "vigilance" on inflation from the European Central Bank (ECB).

"Gold was hit hard on the day," says Mitsui's technical note today. "After making a high at the 100-day moving average of $875, the market closed $40 lower.

"$845 was the support level and despite strong physical demand, the technicals now point to a further pull back."

The US Dollar weakened slightly on Friday, allowing the Euro to regain 1¢ of the 11¢ lost over the last seven sessions.

For European investors and savers – now hit by a weakening currency, strong inflation, a slowing economy and the threat of lower interest rates from the ECB – the Gold Price in Euros held above €600 overnight before recovering one-third of yesterday's 2.3% drop at €609 an ounce.

Here in Britain, the major newspapers and broadcast media continued to promote Gold Coins as a "safe haven" investment despite the 10% gap between prices to buy and to sell, and the inconvenience new buyers will face when they want to get out.

BBC television, the Financial Times and The Daily Telegraph all report "savers queuing in the street" at one UK gold dealer, giving its location in London's West End.

Inside, the dealer showed an FT reporter "its last Krugerrand and one of its few remaining [1 kilo] bullion bars.

Outside, the paper reveals, "furtive men clutching hold-alls and rucksacks...rushed on to the Strand, seeking safe havens for their glittering bounty."

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On the data front Friday, US employers cut 159,000 jobs in Sept., the Labor Department announced, the worst drop in five years.

Average earnings rose only 3.4% from a year earlier. Inflation in the cost of living was last pegged above 5.6%.

Home-owners here in the UK meantime paid down £2.8 billion ($5bn) of their "mortgage equity" debt between April and July, the Bank of England said today – the first time mortgage equity withdrawal has turned negative since spring 1998.

Over the following 10 years, UK home-owners mortgaged £8.3 billion ($15bn) of the apparent value in their property, equal to an average 4.1% yearly pay increase that now needs paying back to the banks.

When the UK property market last bubbled and burst in 1992, home-owners paid down their equity withdrawal for six years running.

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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