Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Drops Hard with Stocks, Oil & Euros After Yen Surges; Bond Holders Await "Trick AND Treat" from the Fed

Commodities / Gold & Silver Oct 22, 2007 - 08:41 AM GMT

By: Adrian_Ash

Commodities

SPOT GOLD PRICES failed to recover a sharp overnight drop early Monday, sinking below $750 per ounce for the first time in 10 days to cap a run of eight weekly gains in nine.

Crude oil prices also fell hard – losing almost $5 per barrel from last Thursday's new record highs – while world stock markets sank alongside, dropping more than 1.9% on the MSCI's Asia-Pacific index.


The US Dollar, in contrast, suddenly spiked higher from new historic lows after the Japanese Yen had earlier gained 1.2% following the G7 summit in Washington that ended on Saturday.

The Euro dropped nearly two cents inside three hours.

"Investors are selling gold to pay margins on their equities," reckons Bernard Sin at MKS Finance in Geneva .

"The Gold Market needs a correction. It is very long at the moment."

Racing earlier to a near 6-week high vs. the Dollar in Asian trade, the Yen acted as a proxy for the Chinese Yuan after the "group of seven" developed-world leaders said it wanted Beijing "to allow an accelerated appreciation of its effective exchange rate".

The Japanese Yen is the most heavily traded Asian currency, while the Chinese Yuan remains fixed to the US Dollar and a basket of other major currencies, albeit inside a "flexible" band that lets it rise 0.5% each day.

The Yen last rose this sharply amid the "credit crunch" turmoil of early August.

Back in the gold market, spot Gold Prices dropped more than $18 per ounce between the Asian opening and midday in London , undoing all of last week's gains as the Yen shot higher in Tokyo trade.

The Nikkei stock index dropped 2.2% to reach a four-week low, while Japanese government bonds rose for the fifth session running, putting in their best performance since July.

Gold futures traded in Tokyo dropped more than 1.8% for the session. The Aug. '08 contract ended Monday's session equal to $770.43 per ounce.

"You can say everything is still positive for gold," reckons Ronald Leung, head of Lee Cheong Gold Dealers in Hong Kong , speaking to Reuters. "There's light buying on the physical side.

"I think $750 to $752 should be the support. Resistance is at $770. People are still on the bullish side and happy to buy."

Here in London , the FTSE100 index began the week 114 points lower, gapping down at the open as the 300 biggest stocks in Europe dropped 1.4% on average, adding to last week's 2.3% loss.

Earlier on the currency markets the British Pound had spiked to a new 26-year high above $2.0550, while the Euro recorded new all-time highs vs. the Dollar above $1.4340 before its sudden slide.

For European investors wanting to Buy Gold Today , the price vs. British Pounds slipped almost 0.9% by the time London opened, losing another £2.50 to trade below £367.50 by lunchtime.

Gold Priced in Euros dropped to a 10-day low below €528 per ounce.

"We are playing catch up with the US ," reckoned David Buik of Cantor Index, speaking of the sell-off in European stocks today.

"It was ludicrous to think early last week that credit conditions were getting easier. We got terrible results from Citigroup, Wachovia and Bank of America."

Almost one-third of the 500 companies in Wall Street's S&P index will report their third-quarter results this week. Out of 131 companies reporting so far, says Reuters, more than 25% have missed analyst forecasts.

On Friday, US stocks suffered their worst day in two months. The futures market now puts the chance of a cut in US interest rates at 98%, up from just 32% at the start of last week.

There is little economic data due before the Fed's next meeting, with only jobless and new-home sales figures this Thursday. But a sharp cut to Dollar interest rates when the Federal Reserve meets on Halloween (Weds 31st Oct) would prove both "trick and treat" for bond investors.

The first rate-cut in this new cycle sparked a 5.2% drop in the Dollar's trade-weighted index since mid-August, plus an 18% rally in world Gold Prices. The accompanying rally in US government bonds – which tend to rise as interest rates fall – has flatly ignored the loss of purchasing power that Dollar-denominated bonds are suffering.

( To get a full report on Gold vs. Bonds , plus a gram of Free Gold stored in Zurich, Switzerland, click through and Register with BullionVault now... )

"Obviously there is a limit to the extent that [US] obligations to foreigners can reach," said Alan Greenspan, former chairman of the Fed, in a speech on Saturday.

The Dollar's current historic lows may be "an indication America is approaching this limit," he added, failing to note his own role in creating nearly $9 trillion now outstanding in US government obligations.

Foreign investors already look sick of the Dollar's ongoing plunge, dumping $163 billion of US assets in August alone. Yet the price of two-year US Treasury bonds has shot higher regardless, pushing the yield offered to new buyers down to a two-year low.

Ten-year US bonds now yield less than 4.39%, down from 5.30% at the start of June.

In short, Western investment funds and institutions are buying government debt even as America 's largest creditors in Asia are trying to quit their positions. And meantime, the loss of Dollar-purchasing power is NOT being countered by higher interest rates.

The last time Dollar-bond holders were destroyed by low interest rates, back at the end of the 1970s, investors fled into the "safe haven" of gold – and Gold Prices rose more than 8-fold inside three years.

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.

Adrian Ash Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in