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Gold Unmoved by ECB Interest Rate Cut

Commodities / Gold & Silver 2009 Jan 15, 2009 - 10:46 AM GMT

By: Adrian_Ash

Commodities THE PRICE OF WHOLESALE GOLD BULLION was left little changed by the widely-anticipated cut to Eurozone interest rates Thursday, trading at $809 an ounce in London – and down more than 5% for the week so far – as global stock markets plunged yet again.

The European Central Bank (ECB) lopped 0.5% off its key interest rate, taking it back to the record low of 2.0% hit during the last global "Deflation Scare" of 2001-2004.


Still paying 200 basis points more than the Dollar, the Euro dipped towards a 5-week low of $1.3100 on the forex market, but the fresh dose of cheap money failed to stem a 0.8% drop in the CAC40 Paris equity index.

Only European bond investors seemed at all surprised by the ECB's move, with 6-month bund yields falling almost 0.8% to just 1.29% as the price of fixed-income government debt was bid higher.

"The precious metals are being pushed steadily lower by the weak oil price and softer Euro," reckons the technical analysis team today at Mitsui in London – heart of the world's Wholesale Gold Market .

Gold ETF investors, however – willing to trade paper shares in trust-fund structures that then hold gold in major bank facilities – have "taken this dip in price as an opportunity to add to their positions," the gold dealer adds.

New York's SPDR exchange-traded gold fund, the world's very largest, said yesterday it's holding some 790 tonnes of gold – a new record.

"We expect gold to push higher on the back of tighter supply and continued safe-haven buying by investors," says Helen Henton, head of commodity research at Standard Chartered bank in London.

"In the second half of 2009, this should combine with a weaker US Dollar to help push Gold Prices above $1,000 an ounce."

The world's No.2 gold producing nation, South Africa, today reported a 12.6% drop in Gold Mining output for the 3 months to end-Nov. That compares with a 0.5% drop in non-gold mineral production.

Formerly world No.1 until China overtook it last year by default, South Africa's annual gold output has more than halved in the last 10 years.

Now Standard Chartered's analysis forecasts an average price of $971 an ounce for Gold in 2009 , up by more than one-tenth from both its previous forecast and the average 2008 price.

Short-term, "Momentum indicators on the daily charts are nearing oversold levels and this hints that we might see a temporary respite in the form of short covering," reckons Pradeep Unni, an analyst at Richcomm Global Services in India, speaking to Reuters.

"Physical buying has recovered a bit," adds Dick Poon, manager in Hong Kong for German-refining group Heraus Ltd, "but there's still some pressure related to currencies right now.

"The US Dollar is quite strong. That's why the funds still continue to sell."

Rising against pretty much everything else today, however, the US Dollar was outpaced by long-time zero-yielder the Japanese Yen, slipping to within ¥2 of Dec.'s 13-year low vs. the Yen on the currency market.

Crude oil held steady near $37 per barrel. Platinum prices fell hard on news that European car sales fell almost 8% in 2008, their sharpest fall since 1993.

Around 70% of physical platinum demand is for making auto-catalysts. December saw a worse than one-in-six drop in Eurozone car sales year-on-year.

Meantime on the political front, 170 arrests were made during a protest in Sofia – capital of Bulgaria – on Wednesday night.

The Latvian capital Riga was hit by anti-government riots on Tuesday night.

Bulgaria joined the European Union on New Year's Day 2007. Latvia joined three years earlier, and has since enjoyed double-digit growth in its GDP. But analysts now forecast a 5% contraction in Latvia's economy during 2009, however.

The central bank has already spent one-fifth of its currency reserves trying to defend its Euro-hopeful currency, the Lat.

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 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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