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Gold Jumps as European Equities Sink

Commodities / Gold & Silver Jul 10, 2008 - 09:00 AM GMT

By: Adrian_Ash

Commodities THE PRICE OF GOLD leapt 1% to a one-week high at the US opening on Thursday while oil prices struggled near $136 per barrel and European stock markets caught up with the S&P's latest 2% drop.

The Dollar was little changed against the Euro and British Pound, despite news of a 53% jump in US home foreclosures last month from June '07.


The US jobs market deteriorated markedly at the end of June, said the Labor Dept., with continuing benefit claims reaching 3.2 million – the worst level since Dec. '03 and greater by more than one-quarter from this time last year.

" Gold remained well bid in the aftermarket on Wednesday," noted Manqoba Madinane for Standard Bank this morning, "even though oil prices slipped.

"This could be a signal that gold is becoming the safe-haven of choice again."

The government of Iran – the world's fourth largest oil producer – said this morning it has conducted further long-range missile tests, taken as a threat against Israel and local US targets.

According to the Financial Times , the French oil giant Total will be the latest (and last) major Western energy firm to pull out of investing in the country.

"The geopolitical tensions with Iran and the continuing depletion of US crude stocks have helped the oil price stay within its trend channel," says Mitsui, the precious metals dealer in London .

"With the oil price turning higher, Gold rallied back up to test [and breach] the intermediate resistance at $930."

As Gold Prices rose Thursday, soft commodity prices slipped but base metals traded at the London Metals Exchange rose sharply, led by a 10% jump in the price of lead.

Aluminum hit a fresh all-time record on news that China 's biggest smelting firms have agreed to cut output by one-tenth to avoid a looming supply surplus.

"This is genuinely bullish for aluminum," said one London fund manager to Bloomberg earlier. "There are shortages of electricity popping up all over the place," agreed Vivek Tulpule of mining giant Rio Tinto, "taking energy away from aluminum production.

"That represents good conditions for that market."

Thanks to the record surge in raw material prices since the start of '08, five of the top ten US mutual funds during the last six months were focused on commodity and metal investments, according to new data released by the Investment Company Institute.

Leading the field was the Oppenheimer group's Commodity Strategy Total Resource Fund, now more than 37% higher from New Year's Day.

One of the first commodity funds promoted to retail investors, it trades commodity futures and options rather than physical assets or mining stocks. Yet the raw commodity markets have outpaced the fund's gain, with the Goldman Sachs Commodities Index (GSCI) rising almost 45% since January.

The S&P 500 index of US equities, in contrast, has lost more than one-fifth of its value – signaling a technical bear market – since topping out in Nov. last year. Indeed, US stocks just delivered a Decade of No Returns .

Commodity prices will continue their bull market for another five to 10 years, according to two fund managers at Investec, the South African investment bank.

Speaking to the Business Day newspaper in Johannesburg , Mark Lacey and Jonathan Waghorn cited auto-sales as evidence of strong raw materials demand outside the developed-nation members of the OECD.

"The volume of Chinese car sales is up 18% in the first four months of 2008," they noted, "and Brazilian sales are up 38% as a result of a recent credit boom in the country."

Writing for the Financial Times , meanwhile, former Bank of England member Willem Buiter forecasts "real oil prices between $200 and $500 [that will] accelerate the shift in wealth, financial power, economic clout and political influence towards the energy exporting countries, especially the Middle East and Russia."

Here in London today, the Bank of England kept UK interest rates on hold for the third month running as the nation's largest mortgage lender, Halifax, reported a 2% drop in house prices for June.

That took the 12-month drop to more than 6%. According to research from the MoneyFacts website, 15 mortgage lenders failed to reduce their interest rates in response to the BoE's April cut. A further 38 didn't cut their rates by the full 0.25%.

"These factors have curbed housing demand," noted Halifax economist Martin Ellis today. "[Plus] there has been a slight fall in real earnings over the past year."

As in Europe , UK consumer-price inflation is now running at a 16-year high. The Gold Price in Sterling has risen more than 43% over the last 12 months.

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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