Gold Holds Steady as World Stock Markets Drop on New Credit Woes; British Pound Falls After Weak Data

By: Adrian_Ash

SPOT GOLD PRICES ticked lower but held above $801.50 per ounce in Asian trade on Monday, spiking higher in London as world stock markets continued to sell off.

"I'm telling people this is the place to take money off the table and look to rebuy on a pullback," says Robin Wilkin at J.P.Morgan in London .

"Gold is still struggling on the upside after the strong rally and with big resistance just overhead," agrees Phil Smith for Reuters India.

"Support kicks in at $770 to the downside and overhead the very big level is $835 which is the 1980 high," Smith believes.

Gold futures traded at the Tocom in Tokyo today rose 1.6%, playing catch-up with Friday's dramatic $18 gain in the US session. The Nikkei stock index, meantime, dropped by the same proportion.

Financial stocks in the Asia-Pacific region fell nearly 2% after the world's biggest bank – Citigroup – lost its CEO, Chuck Prince, yesterday.

Citigroup now says it may need to write-down a further $11 billion on mortgage-related investments after admitting to a $6.5 billion write-down for the July to Sept. period.

In Hong Kong the Hang Seng index sank by 5%, closing nearly 10% below last Tuesday's new all-time record high. The Hang Seng had previously risen by one-half since the start of April.

European stocks opened the week sharply lower, dropping 0.6% in early trade. Here in London , shares in the UK 's second-largest grocery chain, Sainsbury's, dumped one-fifth of their value this morning after an investment fund backed by the government of Qatar walked away from bidding for the supermarket, citing "credit market turbulence".

The Qatar Investment Authority was asked last week to inject an extra £500 million ($1bn) to cover a "potential" shortfall in Sainsbury's pension fund.

"I am sure gold will reach $850 by the end of this year," reckons Yukuji Sonoda at Daiichi Commodities in Tokyo . "Every government is very anxious about the Dollar [and] this will automatically support the Gold Price . There's a strong intention from the Chinese government to sell the Dollar."

"If there's more money flowing into gold, maybe we can even see gold at $900 by the end of this year," says Ronald Leung of Lee Cheong Gold Dealers in Hong Kong , talking to Reuters today.

In India – where the Diwali festival of lights this coming Friday will mark an auspicious time for gold buying on the Hindu calendar – Gold Prices in jewelry shops this weekend reached 10,310 Rupees per 10 grams, an 18-month high according to D.D.News.

" Gold Prices are already more than Rs 1,300 higher than the last Diwali levels," says the newswire. "Besides festival demand, a sharp surge in international prices has also added to the rally in the domestic [Indian gold] markets."

Meantime on the currency markets, the US Dollar crept higher vs. the Euro overnight, bouncing half-a-cent from last Friday's new all-time low.

The British Pound, meanwhile, sank nearly 1¢ from last week's quarter-century highs on news that UK industrial output shrank in the year to Sept. Sterling then dropped to $2.0805 after the PMI of confidence in the services sector fell to 53.1 points in Oct., well below expectations and down from Sept.'s reading of 56.7.

That move on the currency markets pushed the Gold Price in British Pounds back up to last week's closing level, just shy of a new all-time high above £386 per ounce. For Eurozone investors wanting to Buy Gold Today , the price rallied 0.4% from a dip to €553 per ounce.

Over in the energy markets, US crude oil dropped 1.4% overnight to $94.61 per barrel after Kurdish rebels in northern Iraq freed eight Turkish soldiers. PetroChina, newly listed on the Shanghai stock exchange today, meantime bucked the sell-off in world equities to gain more than 160% on its debut.

Now larger than the entire Russian stock market, PetroChina became the world's biggest company by market value at $1 trillion.

But the surging price of oil threatens to push the cost of living sharply higher, according to Alan Greenspan, former head of the US Federal Reserve. "The United States is tremendously vulnerable to oil price shocks," agrees Herb Kelleher, chairman of Southwest Airlines.

"We're headed for a crisis insofar as our consumption of energy is concerned."

"Just since August," says a statement from American Airlines, "average spot market crude oil prices have risen by nearly $14 a barrel. That increase translates into more than $1 billion of additional annual expense for American."

Rising oil prices are also denting profit potential in the gold mining sector. Newmont Mining, the world's second-largest producer, said last week that earnings-per-share doubled between July and Sept. from the same period in 2006. But it raised its cost-per-ounce forecast from $400 to $430.

Oil accounts for 12% of Newmont's costs said CEO Richard O'Brien last week. Newmont's stock has risen by 15% so far this year.

The spot Gold Price , meantime, has risen by 25%.

By Adrian Ash
BullionVault.com

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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 2007

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