Gold Falls Below $900 as Global Stock Market Bounce Continues
Commodities / Gold & Silver Feb 04, 2008 - 08:08 AM GMTBy: Adrian_Ash
SPOT GOLD PRICES sank at the start of London trade on Monday, adding to Friday's sharp losses and dropping $12 per ounce from an overnight rally in Asia to fall below $900 for the first time in seven sessions.
As the wave of sell orders pushed physical Gold Bullion as low as $897.20 before a rebound to $903, world stock markets continued Friday's rally, pushing Europe's 300 largest blue-chips some 0.9% higher by lunchtime in Frankfurt.
"The Gold Market is still very much driven by speculation, so when liquidation comes in, it can be quite frightening," noted a Singapore dealer to Reuters earlier.
He pegged short-term support at $880 – the same level picked by Wolfgang Wrzesniok-Rossbach, chief metals trader at the Heraeus refining group in his latest Precious Metals Weekly .
Overall, "we see no quick fix to the [bullish] situation," says Wrzesniok-Rossbach, citing the on-going crisis in South African gold production, as well as falling central bank gold sales and the US Fed's gold-friendly interest rate cuts of last week.
But "the risk of a set-back has been mounting as a result of the recent, massive gains."
Tocom gold futures for Dec. '08 today closed 1.4% lower at the equivalent of $916 per ounce, while the Nikkei 225 stock index rose 2.7% to hit a two-week high. Yahoo Japan gained 9.5% in response to Microsoft's $43 billion bid for the search-engine's US parent.
Hong Kong shares gained almost 4%, meantime, buoyed by news that Beijing will indeed allow new equity mutual funds to float on the Chinese mainland.
The $4 billion IPO of China Railway Construction Corp. was also postponed, pushing money into existing issues.
"Another underlying impetus for the gains is the lack of bad news – for now – related to subprime problems," said Soichiro Monji, chief equity strategist at Daiwa SB to Reuters.
On the currency markets the Euro today retreated towards Friday's lows at $1.4800, but for French, German and Italian investors Buying Gold , the price touched an eight-session low this morning of €606 per ounce – almost 4% beneath last week's new all-time record highs.
The British Pound recovered half of Friday's three-cent plunge vs. the Dollar to trade above $1.9760. That helped to push the Gold Price in Sterling down below £454 per ounce for the first time since Jan. 23rd.
Crude oil held steady at $89 per barrel after the Opec cartel agreed yesterday not to increase output. Coal prices at the Newcastle terminal in Australia meantime leapt by one-quarter today from last Monday's rate, breaching $116 per tonne as flooding in Queensland, snow-storms in China and the on-going power outage in South Africa curbed global supplies.
South Africa 's state-owned power monopoly, Eskom, says it has restored 90% of electricity supplies to the industrial customers in the world's No.2 gold-producing nation. But it still faces a shortfall of between 1,000 and 1,500 mega-watts, and the "probability of load-shedding [i.e. shutdowns] is high," according to a spokesman.
Xstrata became the first mining company to declare force majeure on Friday, suspending shipments of ferrochrome and vanadium – both crucial to steel production.
Also on Friday, GoldFields Mining – the world's fourth-largest gold company – warned that the 90% energy cap threatened six of its 21 mine shafts with closure.
"I must stress this is a very serious situation," said CEO Ian Cockerill. He forecasts a 20-25% drop in first quarter output if power supplies remain at 90% or below.
Government bonds fell this morning alongside Gold Prices as world equities rose early on, forcing the yield on 10-year German bunds lower for the first session in three. Ten-year US Treasuries yielded 3.61% by 11:00 in London – nearly one-third of a per cent above the four-and-a-half-year lows seen two weeks ago.
But that was still way below the last recorded rate of US consumer-price inflation at 4.1% per year.
"Bonds are at the mercy of what's going on in equity markets," reckons Charles Diebel at Nomura International. "As they rebound we're seeing some of the safe-haven support [for bond prices] evaporate, but only until the next negative headline."
Russia 's central bank today raised its key lending rate to 10.25%, warning that if it ignores inflation, it "won't be able to provide strong growth for the economy."
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 2008
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