Gold Sinks Below $900 on “Panic Selling” of Commodity Investments, But Indian Gold Buying Surges

THE SPOT PRICE of physical gold bullion sank to a two-month low of $889 at the start of London trade on Tuesday, taking the last fortnight’s losses to more than 14% before recovering to $897 per ounce.

Crude oil recovered $1 after dropping to $100 per barrel, copper futures dropped 2.5%, and soft commodities continued to plunge in what one analyst called "panic selling".

THE SPOT PRICE of physical gold bullion sank to a two-month low of $889 at the start of London trade on Tuesday, taking the last fortnight’s losses to more than 14% before recovering to $897 per ounce.

Crude oil recovered $1 after dropping to $100 per barrel, copper futures dropped 2.5%, and soft commodities continued to plunge in what one analyst called "panic selling".

"It looks like a fairly broad-based sell-off," says Andrew Montano, a director and floor trader in Chicago for Scotia Mocatta, "[but] gold’s been following crude and that’s basically been tanking.

"There is not a lot of support for commodities in general, but oil is the really big story."

Tokyo and Hong Kong stocks closed Tuesday more than 1% to the good – despite a surprisingly weak reading of Japanese confidence from the Tankan survey for March – as the US Dollar rose sharply on the forex market.

German retail sales fell year-on-year last month, the official data agency said in Berlin, while employment growth and manufacturing activity both beat forecast.

Switzerland today reported industrial growth slowing to a 32-month low.

"The weakness emanating from the United States is starting to spread into Europe and Japan," said Edward Meir of MF Global to Bloomberg today.

"Even Asian countries are starting to slow down [and] you can’t just keep buying commodities when growth is collapsing all around you."

"As the Dollar weakens, in theory, commodities should be given a boost. But you reach a point where economic growth has to come back into the equation." (But Will Recession Kill Inflation? Read on here…)

Dropping more than 16% inside four sessions, soybean prices were hammered on Monday after a US government report forecasting a near-18% increase in planting this year.

The Reuters-Jeffries CRB index of 19 heavily traded commodities has now lost 11% of its value since the end of Feb.

Here in London the Morning Fix recorded its lowest Gold price since Feb 6th. at $897, while silver prices dropped 7% from yesterday’s Fix.

 
Japanese gold futures traded in Tokyo had earlier closed 4.1% lower, while platinum futures were suspended after going "limit down" with a loss of 4.4%.
 
The Feb. ’09 platinum contract rose by almost one-fifth during the first quarter of 2008, according to Bloomberg data – the strongest quarter for the most-active Japanese platinum future since the end of 2001. But a global slowdown now threatens car production, the key platinum market, and following the metal’s near-doubling over the last year, automakers will switch to using palladium in their catalysts, believes Stephen Briggs at Societe Generale, cutting their platinum consumption by 3.9% in 2008.

Today in India’s gold jewelry shops, in contrast, "there is very good demand we are seeing after two to three months," said Amit Mittal, head trader at M.D. Overseas in New Delhi to Reuters this morning.

"The first day of the [financial] year could also be encouraging jewelers to Buy Gold as many had exhausted their inventories but had not bought ahead of their book closing."

Local Gold Prices dipped below 12,000 Rupees per ten grams, but "we are missing the dip" as one dealer put it, because India’s bond and forex markets were closed Tuesday for book-keeping.

"April and May are the busy months for weddings, so people are expected to keep buying," reckons Ajay Singh at Kiran Jewellers in Jaipur.

"Demand has been good in the last 15 days."

Losing nearly 6% from Monday morning’s high, the Gold Price finally bounced off $889 per ounce this morning, a level last seen at the start of Feb.

For French and German investors looking to Buy Gold today, the price sank to €570 per ounce – more than erasing this year’s gains to date.

The Gold Price in Sterling dipped below £455 per ounce – more than 11% off the all-time record of March 17th – as the Pound slid to a three-week low beneath $1.9740.

"The Euro’s upward trend lost some momentum [Monday] but that doesn’t change the underlying bearish Dollar sentiment," says Matthew Strauss at RBC Capital Markets in Toronto.

"Although some came into the year thinking the worst was behind us, the first quarter was clearly one in which markets struggled to get a handle on just how deep the problems in the US economy really were. To call a bottom now is still a very risky call. It’s too early to say the worst is behind us and the Dollar’s in for a sharp rebound."

The first-quarter certainly proved disastrous for UBS, the former No.1 Swiss investment bank. Today announced a further $19 billion of credit-linked writedowns.

Marcel Ospel, the UBS chairman, finally announced he is stepping down. The bank is now seeking to raise $15bn via a new rights issue.

Last night on Wall Street, Lehman Brothers – the fourth largest securities firm in the US – said it is looking to raise $3 billion in a new sale of equity after repeatedly denying that it is the "next Bear Stearns".

Lehman’s stock lost 26% of its value last month.

Today Deutsche Bank, the largest bank in Germany, admitted to a further €2.5 billion ($3.9bn) in credit-related writedowns – "equivalent to more than a third of its 2007 net profit," as the FT notes.

Chief executive Josef Ackermann – whose contract until 2010 was yesterday confirmed by the supervisory board – said in a statement that "conditions have become significantly more challenging during the last few weeks."

 
Adrian Ash
 
 
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
 
(c) BullionVault 2008
 

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault ? where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.