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Gold Volatile as Bear Market Grips Stocks

Commodities / Gold & Silver Jul 08, 2008 - 11:07 AM GMT

By: Adrian_Ash

Commodities

THE PRICE OF GOLD surged and then fell back in yet more volatile trade early Tuesday, regaining all of yesterday's 1.9% drop before slumping $14 per ounce.

The Gold Price then picked up again as world stock markets sank, oil prices ticked below $140 per barrel, and government bonds rose further.


"Renewed inflationary concerns and geopolitical tensions, especially with respect to the Middle East ...lead to a bullish outlook," says Standard Bank in Johannesburg in a series of notes on the metals & commodity markets today.

"Although we believe the US dollar remains the main driver of gold investment, underlying credit risk should support precious metal prices and, in particular, the Gold Price ."

Citing the 25% drop in bullish gold contracts held by non-commercial traders on US futures market since the record high of late Feb., "there is [now] scope for more speculative strength," the bank concludes.

Looking at Monday's late bounce in the US Gold Market , "support for gold was found at the 100-day moving average of $915 per ounce," noted the team at Mitsui, the precious metals dealer, here in London this morning.

"Silver is moving perfectly in line, with support also at the 100-day moving average. [But] platinum has dropped below its upward trend line from the start of the year.

"With the last three days progressively lower and so below the 100-day moving average level (now $2031), the platinum market may be starting to run out of steam."

Crude oil today slipped further below $140 per barrel, even as political leaders from the world's G8 economies continued to discuss global energy demand, supply and prices at their conference in Hokkaido , Japan .

"As for currencies, there were opinions that cooperation among not only G8 countries but also with emerging economies is needed," said a Japanese official to reporters after an official press release urged "some" emerging nations to let their currencies rise freely on the forex market.

That was taken as a thinly veiled reference to China , which has a large and growing Trade Surplus with the US .

The Chinese Yuan has risen by more than 10% against the US Dollar over the last 12 months, but the People's Bank of China continues to cap its daily gain to just 0.5% whilst also setting a "central parity" target.

Today the US Dollar was little changed against the Yuan at CHY6.862. But it capped the Euro below $1.5750 and held the British Pound beneath $1.9800 after a White House spokesman reiterated President Bush's faith in a " Strong Dollar Policy ".

That helped leave the Gold Price for European and UK investors little changed from Monday's US close at €588 and £467 respectively.

Meantime in Tokyo , the Nikkei stock index dropped another 2.5% while Tocom gold futures held steady near their recent four-month highs, equivalent to $937 per ounce.

A further 3% drop in Hong Kong shares, plus a 1.5% drop in European bourses – led by French auto-maker Peugeot Citroen warning of "free falling" sales that have "nose-dived" – took the MSCI index of global equity markets into "bear market" territory, pulling it more than one-fifth below the recent top of Nov. '07.

"Commodity markets are performing strongly, as opposed to poorly performing equity markets," said Robin Bhar, head of metals trading at Calyon – Europe 's third largest bank – to Thomson-Reuters earlier this morning.

"The money coming out of equities has to go somewhere. It is prudent to employ some of that in commodities, and more specifically in the Gold Market ."

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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