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Gold Dives as Euro and Stocks Bounce

Commodities / Gold & Silver 2009 Mar 09, 2009 - 10:12 AM GMT

By: Adrian_Ash

Commodities THE SPOT PRICE of gold bullion slipped $16 per ounce to a three-session low as New York opened for business on Monday, trading at $924 as world equities struggled to cap four consecutive weeks of sharp losses.

The Euro bounced from a two-cent drop to the Dollar, but the Pound Sterling collapsed to a 6-week low.

This weekend the British government hiked its stake in Lloyds Banking Group – now the largest UK bank – to almost two-thirds.

Today the Gold Price in Sterling rose to £669 per ounce, up by more than 91% since the UK government first bailed out Northern Rock in Sept. 2007.

"This global crisis needs a global solution," said World Bank president Robert Zoellick at a press conference Sunday, warning that global trade and GDP would both shrink in 2009 for the first time since the end of WWII.

Pointing to "an economic catastrophe in developing countries" as private capital withholds up to $700 billion from emerging-market bonds, "We need investments in safety nets, infrastructure, and small and medium-size companies," he added, "to create jobs and to avoid social and political unrest."

On the political front this weekend, Iran test-fired a new air-to-surface missile while fellow "rogue state" North Korea responded angrily to military drills by South Korean and US troops, cutting off a telephone hotline to Seoul.

After a 12-year hiatus, separatist terrorists calling themselves the Real IRA killed two British soldiers stationed in Northern Ireland.

"The head of China's energy bureau, Zhang Guobao, made a statement [overnight] that the nation should use part of its foreign currency reserves to invest in commodities such as gold and oil," says today's Gold Investment note from precious metals dealer Mitsui.

"[But] we have heard whispers from this nation many times before, so it's no surprise the markets did not react to these comments."

Open interest in US Gold Futures and options shrank by 4% in the week to last Tuesday, latest data released after Friday's close showed.

The "net long" position held by hedge funds and other large speculators (number of bullish contracts minus the number of bearish bets) fell back to a one-month low in the five sessions to 3rd March.

That was equal to 77% of the all-time record hit 12 months earlier.

"The resistance at $942 seems to be quite formidable," reckons Pradeep Unni, chief analyst at Richcomm Global Services in Dubai, speaking to Reuters.

"Gold hasn't been able to scythe that despite repeated attempts on Friday and early today...which hints that a probable drop to $920 would be a close possibility, before gold inches up north again."

Crude oil meantime ticked higher towards $46 per barrel, with a Bloomberg survey of analysts and traders expecting further cuts to Opec production quotas when the oil cartel meets this weekend.

Government bonds were mixed early Monday with 10-year US Treasury bonds rising to push yields down to 2.87%.

Looking ahead, European states are due to auction €12 billion in fresh public debt this week.

The United States will sell a record $34 billion of 3-year notes on Tuesday, followed by $18bn of 10-year bonds Weds and $11bn of long-dated 30-year bonds on Thurs.

Finance chiefs from the European Union are set call for a doubling of the International Monetary Fund's resources to $500 billion, according to a paper leaked to Reuters.

"It is essential that the IMF has appropriate financial means to assist countries particularly affected by the current crisis," says the draft document, due to be approved ahead of this coming weekend's pre-G20 meeting.

"The Swiss National Bank (SNB) should follow hot on the heels of the Fed and the Bank of England and announce a move to quantitative easing this Thursday," reckons Steven Barrow, writing today for Standard Bank's G10 Currency Weekly.

"It could cut rates as well, although with the target at 0.5% already, there's not much further the bank can go. [Either way] the Franc looks vulnerable...if the SNB chooses to quantitatively ease this week and effect this easing through Franc sales."

On the data front this morning, Eurozone investor confidence fell way below expectations to a fresh record low according to the Sentix survey.

Japan registered its first current account deficit in 13 years for January, with the trade deficit on goods ballooning to ¥845 billion ($8.5bn).

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.

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