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Gold Slips as Geithner's $1 Trillion Surge Fades on Wall Street

Commodities / Gold & Silver 2009 Mar 24, 2009 - 10:19 AM GMT

By: Adrian_Ash

Commodities THE SPOT PRICE of gold slipped to a four-session low beneath $920 an ounce early Tuesday – up more than 6% for 2009 to date, but 8% south of the $1,000 top hit 5 weeks ago – as world stock markets failed to extend Monday's strong gains.


Wall Street's S&P index gave back a quarter of yesterday's 7% rise in the first hour of trade, and the Euro also fell – bouncing off $1.3500 – alongside crude oil and base metals.

Only the British Pound rose vs. the Dollar on the currency market, pushing the Gold Price in Sterling down to a six-week low, after new data showed the cost of living in the UK avoiding deflation in February.

Already running at 0.4% month-on-month in the Eurozone and United States – more than 4.9% annualized – official Consumer Price inflation in the UK rose 0.9% month-on-month.

The old Retail Price measure, which analysts expected to give a negative reading for the first time since 1960, showed monthly growth of 0.6% and annualized growth of 12% excluding mortgage repayment costs.

"In the presence of all the macroeconomic and financial forces that can provide gold with the basis for a significantly higher price terrain," says the latest Gold Investment analysis from London dealers Mitsui, "we remain in the bullish camp for gold.

"The lack of 'traditional' [jewelry] buying in this market is a worry, but the force of the off-take from the Gold ETF community is too big a trend to fight," today's note goes on, also citing "the return of the inverse relationship" between gold and the US Dollar.

"The Geithner plan is very badly flawed," said Nobel award-winning economic Joseph Stiglitz of the US Treasury's new Public-Private Investment Program this morning.

Underwriting the purchase of $1 trillion in bad debts from US banks offers "perverse incentives" for hedge funds and leveraged speculators, he told a Reuters correspondent at Credit Suisse's Asian Investment Conference in Hong Kong.

"Quite frankly, this amounts to robbery of the American people. I don't think it's going to work because I think there'll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer."

Federal Reserve chairman Ben Bernanke today told a Congressional committee that he wanted to stop insurance giant AIG paying staff bonuses – but was advised against it by lawyers – before the row over its $165 billion tax-funded rescue erupted in Washington.

"By financing a large part of the [new $1 trillion toxic debt] purchase with a non-recourse loan," writes Princeton economist Paul Krugman in his op-ed column for the New York Times today, "the government is in effect giving investors a put option to sweeten the deal.

"[Yet] administration officials keep saying that there's no subsidy involved, that investors would share in the downside. That's just wrong."

President Barack Obama is due to hold a press conference later today, explaining Treasury secretary Tim Geithner's plan to the nation.

US stocks opened the day lower, down 0.8% on the S&P index, after rising at their fastest pace since Nov. on Monday's news.

Yesterday the volume of Gold Bullion hoarded on behalf of stockholders in the New York-listed SPDR exchange-traded trust shrank for only the second day so far this year.

Down by less than one-third of a tonne, however, the hoard remained 42% larger from Jan. 1st and held above 1,114 tonnes.

"The signals for a longer-term gold upturn are weakening slightly," notes Phil Smith in his analysis for Reuters India Technicals today.

"Overall, the short-term chart is giving somewhat mixed signals.

In the commodity markets on Tuesday, crude oil dropped a dollar to $52.70 per barrel, while base metals fell, led by aluminum.

Barclays Capital – the London-based investment bank – today told clients that "All anecdotal evidence points toward continued weakness in demand, as does the data."

US government bonds held flat meantime, despite the drop in equity prices. British gilts fell hard on the UK inflation data, driving the yield offered by 20-year bonds back above 4.0%.

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 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.

Adrian Ash Archive

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