Gold Plunges below $900 On US Dollar Rally
Commodities / Gold & Silver Feb 05, 2008 - 12:02 PM GMTBy: Adrian_Ash
THE PRICE OF PHYSICAL GOLD for immediate delivery sank at the start of London trade for the second day running on Tuesday, losing $14 per ounce to bounce off a two-week low of $888 as the US Dollar and Japanese Yen rose sharply on the currency market and world equities continued to tick lower from Monday's 1% drop on the S&P.
Crude oil slipped back below $90 per barrel ahead of tomorrow's US inventories report, tracking base metals lower as Asian-Pacific stock markets lost 0.6% to cap a three-day winning streak.
Soft commodities leapt, however, with both palm and soybean oil hitting new all-time highs after the government of Indonesia – the world's largest producer – said it will raise export tariffs if the bull run rolls on.
"Stagflation is a real danger and, in fact, a probability," says Jim Rogers, legendary commodities investor and founder of the Quantum Fund with George Soros in the stagflationary 1970s, in a new interview with Fortune magazine.
"Bernanke is printing huge amounts of money. He's out of control and the Fed is out of control. We are probably going to have one of the worst recessions we've had since the Second World War. It's not a good scene."
Looking at the short-term picture for Gold Market futures, "April Gold fell to the 50% correction mark [from last week's high] on Monday," notes Christopher Langguth in his technical analysis for Mitsui, the metals dealer, today.
"If it starts to rally there should be heavy buying....[and] the swing objective would be $983.00. But on the downside there should be sell stops at $895.00. There should then be a lot of buy orders at the up trendline, $880.00."
By the AM Fix for physical Gold Bullion of $889.75 per ounce in London today, the Comex gold futures contract for April delivery was trading down at $893 per ounce. Tokyo gold futures traded for delivery in Dec. '08 closed the session 1.3% lower, meantime, equaling $901.38 per ounce as the Japanese Yen jumped to a seven-session high of ¥107.70 per Dollar.
The US Dollar itself rallied hard, pushing the European single currency down to $1.4670 – its lowest level since Jan. 28th – on news that Germany's service sector contracted in Jan. for the first time since summer 2003.
The British Pound also slid, falling back towards Monday's 10-day lows at $1.9665 on news that Olivant – one of only two outside bidders for the ailing Northern Rock mortgage bank – has pulled out of negotiations, citing "inflexibility" in the British government's terms.
Ahead of Thursday's widely expected rate cuts from the Bank of England, news that UK house prices held flat in Jan. added to the pressure on Sterling, helping the Gold Price in British Pounds bounce off £451 per ounce this morning.
Hitting its lowest level in two weeks, the price for Buying Gold in Pounds stood 4.1% below Friday's new all-time record. The price of gold in US Dollars, in contrast, fell more than 5.0% below last week's top.
"Further weakness in the [ Gold Market ] could be prompted by expectations that the US Dollar will regain 9% of lost value against major currencies this year," reckons Walter de Wet, analyst at Standard Bank in Johannesburg .
The US currency even managed to rise this morning against the Australian Dollar, capping the Aussie's 4% surge of the last week despite higher interest rates from the Reserve Bank in Canberra .
"The inflation genie is out of the bottle," said Wayne Swan, Australia 's treasurer, ahead of today's decision to hike RBA interest rates by 25 basis points to 7.0%.
Ignoring the collapse in Australia 's construction sector – where the number of new building permits sank by 16% in Dec. from the month before, while Retail Sales grew just 0.5% vs. 0.6% forecast – "we've got an inflation problem to deal with," Swan went on, "and deal with it we will."
Singapore faces 5% annual inflation in 2008, according to prime minister Lee Hsien Loong. The central bank of Indonesia now forecasts up to 6.5% growth in the cost of living this year, reports the Financial Times today.
In China , "most economists expect inflation to breach 7% this quarter after reaching 6.5% in December," the paper adds.
Pointing to the falling US Dollar and rising inflation, "people looking for alternative investments have driven the Gold Price higher," said Paul Walker, CEO of precious-metals consultancy GFMS Ltd. at the Indaba Mining conference in Cape Town , South Africa , yesterday.
"As the US moves into a recession, it will be good for gold and gold investment...[and] there's no doubt that falling global mine supply is [also] feeding the positive sentiment on gold."
GFMS says total world gold mining output fell by 1% last year, and while Walker now expects growth of 200 tonnes per year by 2010 – taking the annual total back to 4,000 tonnes per year – sharp rises in the cost of production continue to hamper new growth in the short term.
Most of South Africa 's gold mining industry now has 90% of its electricity power restored following the power outages of late Jan. according to MiningMX.com.
But the country's largest mining group, AngloGold Ashanti, may have to wait until the weekend – and "although we will utilize the electricity we are supplied with to the best of our ability," says GoldFields, the world's fourth-largest gold miner – "there will still be lower production overall."
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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