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Gold Follows Stocks Lower as U.S. Dollar Strengthens

Commodities / Gold & Silver 2009 Apr 14, 2009 - 09:03 AM GMT

By: Adrian_Ash

Commodities THE SPOT PRICE of physical gold slipped out of a tight range at the start of New York trade Tuesday morning, holding onto half of yesterday's 1.4% rise as world stock markets reversed early gains and the US Dollar clawed back half of its near-2% loss to the Euro.

Returning from the long Easter weekend in Europe, London's wholesale market recorded its best Gold Fix in almost two weeks at $895 an ounce.

But for French, German and Italian investors now Ready to Buy Gold, the price was held back by Monday's sharp rise in the Euro, trading flat at €670 an ounce – a 16% discount to Feb.'s all-time record high.

“In the first quarter of 2009, the Euro fell more than 5% against the Dollar,” notes Marc Chandler of Brown Brother Harriman & Co., writing at Seeking Alpha and challenging the New York Times' weekend report that China has sharply curtailed its US-Dollar purchases.

“That alone would account for a decline of about $32.17 billion in reserves. China reported a $32.6 billion decline.”

Indeed, “If China’s Euros, Pounds, Yen and other non-Dollar reserves were managed as a separate portfolio,” agrees Brad Setser in his blog for the Council on Foreign Relations, “China's non-Dollar portfolio would be bigger than the total reserves of all countries other than Japan.”

Even so, “the pace of growth in China’s reserves clearly has slowed. Quite dramatically,” says Setser.

Previously swelling by the equivalent of $200bn every 3 months, says Setser, China's foreign currency reserves are now growing at barely one-fourth that pace as the world economy shrinks and exports retreat.

US retail sales today surprised analysts with a 1.1% drop for March, rather than the 0.3% growth expected.

Factory input prices, in contrast, rose on the Producer Price Index, gaining 3.8% annually when food and fuel are ignored – the Federal Reserve's preferred measure.

"Recently we have seen tentative signs that the sharp decline in economic activity may be slowing,” said prepared notes for a speech by Fed chairman Ben Bernanke in Atlanta today.

Dismissing the risk of soaring inflation, "We have a number of effective tools that will allow us to drain excess liquidity and begin to raise rates at the appropriate time," Bernanke says.

“[But] unwinding or scaling down some of our special lending programs will almost certainly have to be part of our strategy for removing policy stimulus once the recovery is under way.”

Former investment bank Goldman Sachs today announced $1.7 billion profits for Jan. to March, but said it wants to raise $5bn from shareholders to start repaying $10bn in tax-funded aid it received last fall.

Over in Berlin, the German government is soon expected to finalize its plans for a “bad bank” to remove toxic investments from commercial balance sheets at tax-payer expense and risk.

Here in the UK meantime – where news of a 4% uptick in mortgage approvals from near-record lows coincided today with Lombard Street Research forecasting that the house-price slump will be over by Christmas – the government is expected to follow Germany's lead and offer £2,000 incentives to new car buyers.

Over in Singapore, new data showed the city-state's economy shrinking by 11.5% during the first 3 months of 2009 compared with the start of last year.

“The Gold Price looks pretty stable at this moment," said a Singapore bank-dealer to Reuters overnight.

"I would expect more physical interest to emerge,” he added, as the Hindu festival of Akshaya Thritiya approaches on April 27th, and southern Indian states celebrate their second-heaviest Gold Buying season of the year.

Premiums paid for Gold Bars in Singapore rose to their strongest level above London spot prices in two months this morning, hitting 50¢ an ounce.

“The Thais were doing some Gold Buying before the weekend,” another Singapore dealer told the newswire, pointing to the state of emergency declared in Bangkok yesterday after four days of anti-government unrest.

“Their markets will reopen on Thursday, so hopefully by then the protest will be under control.”

But while Far East and Indian Gold Investment may pick up in the next fortnight, traditionally strong markets remain weak as the price holds near all-time highs and consumer spending remain under pressure worldwide.

“With the locomotives of the Turkish economy hard-hit by the global crisis,” reports Hurriyet Daily News from Istanbul, “the gold, jewelry and precious stone sectors are competing with the automotive industry in exports as 'Under-the-Mattress Gold' enters the market due to economic hardships.

“As people sell off their gold to the more than 40,000 jewelry stores throughout the country, gold refineries turn it into bullion, trade it at the Istanbul Gold Exchange and then export it, with the biggest export destinations being Britain and Switzerland.”

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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