Gold Plunges 4% as Crude Oil Sinks
Commodities / Gold & Silver Jul 23, 2008 - 07:41 AM GMTBy: Adrian_Ash
THE PRICE OF PHYSICAL Gold dumped another $12 per ounce Wednesday morning in London , falling more than 4% from yesterday's four-session high.
World stock markets continued their sharp rally, meantime, with Europe's 300 largest shares just climbing out of the 20% bear-market loss that hit between Nov. and June.
Crude oil fell towards $126 per barrel. The US Dollar pushed the Euro down to a two-week low beneath $1.5720.
"I am not sure whether the adjustment overnight is going to have a big impact in terms of attracting what you might call bargain buying," said David Moore at Commonwealth Bank in Sydney to the Economic Times of India this morning.
"You've got to remember it was only a couple of weeks ago that Gold was actually lower than current levels."
"Plummeting crude oil prices are the primary risk factor to investment fund flows into precious metals," says Manqoba Madinane in Johannesburg for Standard Bank.
With Tropical Storm Dolly now by-passing key oil installations in the Gulf of Mexico, today brings the latest US crude oil storage statistics from the Energy Information Administration.
The EIA is expected to say crude stocks fell 700,000 barrels last week – down some 0.2% – after the previous week's surprise three million-barrel rise.
"Given the vast net long gold positions built up in the last month," says Mitsui – the precious metals here in London – today, "investors spooked by the ailing oil market and the general malaise in the commodity market have room to liquidate in significant volumes.
"We could see the Gold Market retrace all the way back to a sub-$900 price.
"The main exchange-traded gold fund , SPDR, fell by close to half million ounces in Tuesday's trade – the largest bout of selling since the frenzied liquidation that took place in April."
Touching a two-week low today at $933 per ounce, the Gold Price put in its worst 24-hour performance since early June.
Gold also completed its tenth one-day drop exceeding 4% since the all-time peak of $1,032 per ounce hit on March 17th – the day Bear Stearns was rescued by a fire-sale to J.P.Morgan, aided by a $29 billion loan from the Federal Reserve.
Government bond prices continued to fall today after US Fed member Charles Plosser warned in a speech on Tuesday that Dollar interest rates need to rise "sooner rather than later."
The yield offered by 10-year US Treasuries today jumped to a one-month high of 4.15%. It bottomed at 3.34% in mid-March.
"Inflation is already too high and inconsistent with our goal of – and responsibility to ensure – price stability," Plosser said in Philadelphia yesterday.
After the Federal Reserve slashed US interest rates from 5.25% down to 2.0% in response to the global banking crisis – cutting the real returns paid to cash to minus 3.0% after consumer-price inflation – "we will need to reverse course," he went on.
"The exact timing depends on how the economy evolves."
US mortgage applications fell 6.2% last week, according to new data released this morning.
Thursday brings existing home-sales data, with new house sales for June due on Friday together with Durable Goods orders.
Late Tuesday Washington Mutual – the largest savings & loan institution in the United States – reported a $3 billion loss for April to June, its biggest-ever quarterly loss.
Wamu also increased its loss reserves to more than $8bn in anticipation of further mortgage defaults, and promised $1bn in cost cuts by end-2009.
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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