Gold Bounces from New 3-Week Low as Treasury Bonds Pretend It’s 1982

THE SPOT GOLD MARKET fell sharply at the London opening yet again on Friday, losing 1.1% as Western stock markets rose together with the US Dollar.
The Gold Market then bounced from a new three-week low at $778.20 per ounce, recovering to $886.78 as the US opening drew near.
THE SPOT GOLD MARKET fell sharply at the London opening yet again on Friday, losing 1.1% as Western stock markets rose together with the US Dollar.

The Gold Market then bounced from a new three-week low at $778.20 per ounce, recovering to $886.78 as the US opening drew near.

 
The European single currency also slumped vs. the Dollar, sinking to its lowest level since the start of this month.

"The US Dollar strongly rebounded, and defending its recent gains would be negative for gold," reckons Peter Fertig at Dresdner Kleinwort.

"Furthermore, US stock index futures rose further in Asia and Europe…which would reduce the appeal of Gold as an alternative asset."

"The way the Dollar now looks," agrees a note from J.P.Morgan, "we can see gold trying to break down to between $840 and $800."

Today’s Gold Market note from Standard Bank in Johannesburg pegs support for US gold investors at $880, "with $870 and $847 as near-term possibilities.

"Primary resistance is seen at $903, and secondary resistance at $917. A break higher might see gold test $940."

This morning’s early drop in Gold Prices failed to dent a surge in Zijin Mining, which debuted today on the Shanghai stock.

China’s No.2 gold mining stock almost tripled its initial offering price – and was then suspended for half-an-hour – before closing its first Shanghai session 95% higher.

"The Chinese regulators might be a little concerned that people are crazy about IPOs," said Howard Gorges of South China Brokerage to Reuters earlier.

"They expect an IPO to go up 40-50%, otherwise it’s disappointing. But anything that goes up 200%…then it is crazy. This does looks like some kind of manipulation."

Back in the currency markets the Euro also fell to a three-week low against the British Pound after stronger-than-expected UK growth data.

German import prices rose less quickly than forecast for March, the official statistics agency said today, increasing 5.7% in the year-to-March against Feb.’s 5.9% rate.

Growth in the Eurozone money-supply also slowed marginally last month according to new data from the European Central Bank.

The broad M3 measure of money still grew by 10.3% year-on-year, however. Loan growth to non-financial corporations leapt by 15.0%.

The ECB’s annual target for growth in the M3 money supply remains at 4.5%.

Crude oil meantime rose back above $116 per barrel in volatile trade. Food prices slipped further from this week’s new record highs.

Government bond prices fell across the board, causing the biggest jump in five-year Japanese yields since 1999 according to Bloomberg data. Two-year US Treasuries are heading for their worst fortnight since 1982.

Back then, however, the Federal Reserve was about to end a rate-cutting campaign that began with an all-time peak above 19%. Paul Volcker’s strong medicine forced the rate of consumer price inflation to drop in half.

Facing the subprime meltdown and banking crisis today, in contrast, Ben Bernanke’s Fed are expected to take US interest rates down to just 2.0% next week.

The rate of consumer price inflation in the United States was last pegged at more than twice that level.

"The sharp slowdown in the US real economy will occur in the context of continued global inflationary pressures," writes Mohamed El-Erian – former head of the $30 billion Harvard endowment fund and now co-CEO of Pimco, the world’s biggest bond fund – in the Financial Times today.

"As such, the Federal Reserve’s dual objectives – maintaining price stability and solid economic growth – will become increasingly inconsistent and difficult to reconcile.

"Indeed, if the Fed is again forced to carry the bulk of the burden of the US policy response, it will find itself in the unpleasant and undesirable situation of potentially undermining its inflation-fighting credibility in order to prevent an already bad situation from becoming even worse."

 
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.