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Gold Registers Near 10% Drop for August

Commodities / Gold & Silver Aug 29, 2008 - 12:06 PM GMT

By: Adrian_Ash

Commodities THE PRICE OF GOLD reversed an earlier 1% drop as the Wall Street opening approached on Friday, touching $838 an ounce as Asian stock markets ended the month 3% lower and government bond prices rose.

Up $15 from last Friday, gold prices were heading for their second week-on-week gain. But they remained at an 8% discount to the close of July.


" Gold is still bumping into some strong overhead resistance levels," says Phil Smith in his technical analysis for Reuters India.

"As we all know, the Dollar's movements affect the gold price, but at the moment this negative correlation is strong and rising.

"Also, a long 100-day correlation of Gold vs. Crude Oil at the moment is very high. If you watch gold, you currently have to keep a close eye on oil."

Crude oil today stalled below $117 per barrel despite Royal Dutch Shell – the world's second largest private producer – closing all operations in the Gulf of Mexico ahead of Tropical Storm Kustav arriving on Monday, the US Labor Day holiday.

The Daily Telegraph here in London reports that Russia's top oil producer, Lukoil, has been told by the Kremlin "to be ready to cut off supplies" to Western Europe if the European Union imposes sanctions following the conflict in Georgia.

The EU relies on Russia for one-third of its crude oil supplies and 40% of its natural gas.

"We are trying to elaborate a strong text that will show our determination not to accept Russia 's actions in the Caucasus ," said Bernard Kouchner – foreign minister of France , the current EU president state – to Der Spiegel yesterday.

Leaders of breakaway South Ossetia today signaled they want to merge with Russia .

"Gold is tracking oil higher," said Mitsubishi analyst Tom Kendall to Reuters today, "but this afternoon [in London ] will be interesting as the United States is on holiday on Monday and volumes will be thin.

"It could be a very volatile session."

Thursday saw the Gold Price drop more than 2% as the Dollar rallied on a sharp upwards revision in the latest US economic data.

The Euro today recovered half of its one-cent drop, while the British Pound fell to its lowest trade-weighted value on the forex market since 1996.

The Pound has now lost 12% against a basket of the world's other top currencies since this time last year.

The Gold Price in Pounds Sterling today touched yesterday's three-week highs above £458.50 an ounce after Bradford & Bingley – the UK's largest buy-to-let mortgage lender – reported half-year losses of £26.7 million ($50m) compared with a profit of £180.4m during the same period in '07.

While US Gross Domestic Product rose 3.3% for April-to-June, however – led by a surge in US exports – "there were some cracks in the foundation revealed in the details," as Michael Darda, chief economist at the MKM trading and research partnership in Greenwich, Connecticut.

"With the G7 economies now slowing sharply, which threatens US exports, and stressed credit markets colliding with weak US labor markets – which threatens consumer spending – the second half of this year is likely to be weak.''

"For the fourth consecutive time," adds Christian Menegatti, lead analyst at RGE Monitor, "corporate pre-tax profits declined, down 2.4% in the second quarter after falling 1.1% in the first quarter."

US corporate earnings have now shrunk by 7% since this time in '07 – the worst fall in seven years.

Gross domestic income, meantime – a measure of wages, profits and rent – showed growth of just 1.9% before inflation. "These figures already experienced two consecutive quarters of contraction," writes Menegatti, "[and] suggest that the growth rate of the US economy might be much weaker than the GDP figures."

In 2007 a study of 30-year data by the Federal Reserve concluded that Gross Domestic Income - after accounting for inflation in prices – "has done a better job recognizing the start of recessions than has the growth rate of real GDP."

Back in the physical gold market, meantime, the Rand Refinery in South Africa said Thursday it was cleaned out of Gold Krugerrand Coins by a huge 5,000-coin order from Switzerland .

The world's largest single refinery, which pours 80% of Africa 's gold output, will now take until Wednesday to re-stock its inventory according to a spokesman.

The news comes after gold-coin dealers from India to Germany and the United States met record demand on this summer's 20% fall in the price of gold, creating a Gold Coin Shortage worldwide.

"We've had a fantastic summer with no supply or inventory squeeze whatsoever in the professional wholesale market," said BullionVault director Paul Tustain this morning.

Gold trading by private individuals using the $270 million service "has smashed last summer's numbers three-fold and more," he adds.

"With the world's economic and financial outlook so weak, private gold investment only looks set to grow further as 2008 draws to a close."

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.

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