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Gold follows Stocks Lower on Continuing Yen Carry Trade Unwinding

Commodities / Gold & Silver Nov 11, 2008 - 09:20 AM GMT

By: Adrian_Ash

Commodities GOLD PRICES slipped early in London on Tuesday, dipping below $740 an ounce as the US Dollar and Japanese Yen rose on the currency markets while world stock markets and commodity prices fell once again.


"December Gold Futures are in a consolidation phase," says today's note from precious-metals dealer Mitsui in London, "with support coming in at $730 and resistance at $770.

"Continued physical demand should keep the lower end of this range well supported. [But] volatilities remain under pressure in this environment and it would not be a surprise to see the front-end of the [futures' price] curve continue to move lower."

As the wholesale price of physical Gold Bullion ticked 1% lower from Monday's US close, the Tokyo Nikkei index ended Tuesday 3% lower, while the Euro dropped almost 3¢ to the Dollar.

Crude oil sank back towards $60 per barrel.

"Sentiment is in favor of further Yen gains," reckons Masanobu Ishikawa, head of currency dealing at Japan's No.1 foreign exchange broker, Tokyo Forex & Ueda Harlow.

"A weak stock market causes a reversal in risk trades, which is supportive of the Yen. The Euro is vulnerable because the economic outlook points to lower interest rates in the future."

The British Pound today lost almost 5% against the Yen and fell to fresh record lows vs. the Euro below €1.22 after new data showed UK house sales sinking to a three-decade low in October.

Retail sales plunged at the fastest rate since 2003, yet the UK's total trade deficit widened to a record £13.1 billion ($20.4bn) in the third quarter, the Office for National Statistics said today, even as the British Pound lost almost 6% of its trade-weighted value.

Standard economic theory would claim that such a loss of purchasing power should reduce imports and boost exports, reducing the deficit. Yet the United States' monthly trade gap more than doubled as the Dollar lost one-third of its international value between 2002 and early 2008.

"The remaining 'safe haven' to be unmasked is US Treasury bonds," writes gold-fund manager John Hathaway of Tocqueville Asset Management in his latest Gold Market commentary.

"In the late 1970s they were dubbed 'certificates of confiscation'. We fully believe they will once again be referred to in a similar manner as a direct result of current and still-to-come interventions by the government to shore up financial markets."

Yesterday the US Treasury sold a record $25 billion of new 3-year bonds by auction. Tomorrow it will sell $20bn of ten-year bonds, with $10bn of 30-year bonds to follow on Thursday.

While their wives talked about changing the drapes yesterday, president-elect Barack Obama urged out-going US president George Bush to grant emergency aid to the auto-sector when they met at the White House.

Stock in General Motors fell 23% on Monday to a 60-year low.

Bloomberg News is now pursuing a law-suit against the Federal Reserve, demanding it reveals details of which banks have received how much – and in return for what collateral – through the Fed's $2 trillion emergency loans programs.

The US central bank last week denied a request made by Bloomberg under the Freedom of Information Act, because the loans were made by the New York Fed – officially a private-sector entity, rather than a government body.

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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