Gold Dips as Crude Oil Gains
Commodities / Gold & Silver May 27, 2008 - 07:52 AM GMTBy: Adrian_Ash
SPOT GOLD PRICES ticked lower in early action on Tuesday, slipping just below the tight trading range seen on Monday, when London and New York – the center of world Gold Trading – were closed for public holidays.
Crude oil meantime rose above $133 per barrel after militants hit key pipelines in Nigeria .
Asian stock markets closed higher while government bond prices held flat. European equities fell for the fourth session in six.
"With crude oil showing no signs of stalling, and the US Dollar relatively weak, the upside potential for Gold prevails," says Manqoba Madinane for Standard Bank in Johannesburg , South Africa today.
"However, it has been a nice recovery since the dip into the mid-800s, and perhaps the Gold Market needs a break before making the next move higher."
Speculative gold traders built their largest "bullish" position in two months in the week-ending May 20th according to data from the US gold futures market.
Taking the other side of those "long" contracts, the commercial traders of refinery and Gold Dealing groups grew their bearish position by more than one fifth.
By the AM Fix in London today, the Gold Price had fallen to $923.75 per ounce, almost $4 below the previous fix set on Friday afternoon but 1.6% higher from Tuesday last week.
Rice futures meantime tumbled in Asian trade for the second-day running after Cambodia lifted export restrictions.
Confirming that there are no local shortages – despite the fastest growth in world food prices since the end of the Second World War – Cambodia is the first rice-growing nation to reverse the trend begun last October by India and since followed by Egypt , Vietnam , Brazil and Bangladesh .
In Manila today, only one trading company joined the Philippines government in bidding for new food imports, proving that "the country was not suffering from rice crisis" according to Enquirer.net.
Pointing to the gap between inflation and interest rates, however, "emerging economies risk repeating the same mistakes that the developed world made in the inflationary 1970s," notes the latest edition of The Economist .
"Monetary policy has in effect been loosened: real interest rates are generally lower than they were a year ago."
As a result, "five of the ten biggest emerging economies could have inflation rates of 10% or more by mid-summer.
"Two-thirds of the world's population may then be struggling with double-digit inflation."
( What's the real link between Gold & Inflation ? For a detailed PDF report, read Five Myths of the Gold Market ... )
On the currency markets today the European single currency slipped almost one cent from a new five-week high – hit overnight above $1.5810 – on a weaker than expected GfK consumer confidence report from Germany.
But that move failed to stop the Gold Price in Euros dipping to a five-session low beneath €586 per ounce. For British investors wanting to Buy Gold today, the price slipped just below last week's close at £467.40.
"Alan Greenspan, former Fed chairman, said that the US economy has not averted the risk of a recession," notes today's Gold Market report from Mitsui, the precious metals dealer, citing a report in the Financial Times.
"However, interest rate futures are currently pricing a 90% probability of the Fed keeping rates unchanged – which could see the US Dollar rebound today."
Last week saw the major Western stock markets give back one-third of the 15% gains made since mid-March, when the Federal Reserve aided the "fire-sale" rescue of Bear Stearns by J.P.Morgan.
Now "further equity market weakness could further boost commodity investment sentiment," Mitsui says.
"Look out for May US consumer confidence and April New Home sales statistics, due to be released today, for further indications of the state of the US economy."
Wednesday brings the latest inflation data from Germany , the world's third largest economy. Official GDP growth for the first quarter is then due out in the United States on Thursday.
The Dept. of Transportation said Monday that US consumers slashed the miles they drove in March, recording "the sharpest yearly drop for any month" since records began in 1942.
The American Automobile Association (AAA) says that for the first time since 2002, private individuals planned to cut their driving over the Memorial Day weekend finishing yesterday.
But "any demand decrease out of the US is immediately eclipsed by anything out of the Asian region right now," believes Jonathan Kornafel at Hudson Capital Energy in Singapore, speaking to Bloomberg – "and that has everything to do with subsidies."
Saturday saw the government of Indonesia finally slash its crude oil subsidies, forced by surging oil market prices to push the price at the pumps more than 28% higher.
Sri Lanka then cut its fuel subsidies on Sunday. Bangladesh and India are said to be considering a similar move.
China continues to undermine the impact of rising oil prices on demand, however, by subsidizing petrol to just 60% of US gas prices.
British drivers pay almost four times as much per gallon of gas as Chinese consumers and businesses.
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
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