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Gold Follows Stock Makets Lower

Commodities / Gold and Silver 2010 Apr 21, 2010 - 07:29 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleBOTH GOLD AND SILVER fell back on Wednesday lunchtime in London, slipping 0.5% and 1.5% respectively as European stock markets dropped almost 1% from the opening.

Crude oil and broader commodity prices held flat, together with government bonds.


"BOJ deputy governor: signs Japan exiting deflation," said a Reuters headline.

"Bank of England MPC minutes hint at inflation worries," said the BBC online.

Over in India, "We are not getting [import] stocks," said one bullion-bank dealer to Reuters earlier, despite European airports re-opening after Iceland's volcanic dust cloud moved on.

Amid the current wedding season and ahead of next month's auspicious gold-buying festival of Akshaya Tritiya, "This is supporting gold prices," he said.

Forecasting little change in gold's Rupee value by this autumn's festival season in India – the world's No.1 private consumer market – "The central bank will not miss buying gold on dips," reckons Gnanasekar Thiagarajan, head of research at Commtrendz in Mumbai.

"In fact, China has been waiting to increase its reserve in gold."

The People's Bank of China reported adding 75% to its gold bullion reserves between 2002 and 2009, taking it to 5th place in the world league of official holders.

Last November, the Reserve Bank of India bought 200 tonnes of gold from the International Monetary Fund (IMF), taking it to 10th position.

A new IMF report today called for a global banking tax, raising money for a "bail out" fund to rescue the industry from "a future – and inevitably global – financial crisis."

Wall Street giant Goldman Sachs – which yesterday reported record quarterly earnings at its fixed-income division – rejected US government claims that it misled foreign investors in sub-prime mortgage investments it created in 2007.

Paulson & Co., the New York hedge fund that made $1 billion betting against the mortgage derivatives which Goldman Sachs created, said its behavior had been "appropriate and conducted in good faith" in a letter sent to investors, quoted by Bloomberg.

The letter follows a conference call late Monday with 100 investors, the Wall Street Journal reports, reassuring clients about the hedge fund's involvement in the case.

"It's not a rush for the doors," said one investor to Bloomberg.

Gold lost almost 3% from Friday's high to Monday's low, after news broke that Paulson & Co. – the largest single stockholder of SPDR Gold trust, the world's largest Gold ETF – was named but not accused in the US government's charges against Goldman Sachs.

The SPDR gold ETF trust closed Tuesday holding a record 1141 tonnes of bullion, unchanged for six sessions running.

"Which currency gives us the best indication of gold's real strength?" asks the latest Metals Monthly from London's VM Group consultancy, published for Fortis Netherlands.

"If we use the IMF's Special Drawing Right, or SDR" – a notional currency launched to replace gold bullion in central-bank reserves in the late 1960s – "we find gold hit an all-time high of 762.48 SDR per ounce on 12th April, 1% higher than in early December.

"[This] clearly changes the narrative," says VM, with gold prices standing "at an all-time high."

Physical demand has been weaker than forecast, the report goes on, but it "picking up" in key markets led by India. But the market is "back in thrall to gold investment demand," says the consultancy, noting six weeks of positive inflows to the 17 physically-backed ETFs it tracks.

Priced in the European Euro today, the gold price rose to a 3-session high of €27,445 per kilo, erasing almost all of Friday's drop.

UK investors wanting to buy gold on news that average earnings growth lagged inflation yet again in March saw the price drop back below £740 an ounce, unchanged from last week's finish as the Pound ticked higher on the currency markets.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly 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 2010

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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