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-- Posted Wednesday, 18 June 2008 | Digg This Article | Source: GoldSeek.com

London Gold Market Report

from Adrian Ash

THE PRICE OF GOLD spiked into the US open on Wednesday, moving 2% above yesterday's low as world stock markets fell and crude oil ticked back above $134 per barrel.

The US Dollar held flat vs. the Euro after European construction output showed a 2.4% decline from this time last year.

US home-loan approvals fell almost 9% in the week to last Friday, said the Mortgage Bankers Association.

 
"A very nasty period is soon to be upon us – be prepared," believes Bob Janjuah, credit strategist at the Royal Bank of Scotland in London, in a new report.

RBS warns of a 20% fall in the S&P index by Sept. as "all the chickens come home to roost" from the ongoing global banking crisis.

The value of high-yield corporate bonds could push credit spreads out to 700 basis points, Janjuah reckons, advising that in the turmoil to come "this is about not losing your money."

Gold Prices jumped 54% during the first seven months of the current world banking crisis, topping out above $1,000 an ounce as the Federal Reserve took unprecedented action to support J.P.Morgan's fire-sale purchase of Bear Stearns.

Today Tokyo gold futures for April '09 delivery ended the day flat at €3,106 per gram, but the Tocom commodities exchange said it wants to launch exchange-traded investment funds based on its prices.

The Tocom's move follows news that State Street, sponsor of the world's largest Gold ETF, will list its SPDR Gold Shares in Tokyo at the end of this month.

"Unfortunately, the Gold ETF doesn't have any direct link to our exchange's prices," said Tocom chairman Masaaki Nangaku Nangaku at a news conference in Tokyo.

"But I believe the launch of commodities ETFs will have an impact in helping to develop both the commodities and securities markets, so I welcome the move."

Over in New York last night, "the gold and silver ETFs moved in opposite directions," notes today's Gold Market note from Mitsui, the precious metals dealer, "with the StreetTracks Gold ETF adding approximately 400,000 ounces and the iShares Silver ETF liquidating approximately 1.5 million ounces.

"Combined, this reflects the consolidation these markets are currently going through and until there is a break out of this convergence triangle, the metals will continue to track sideways. Gold's target is $900 and silver needs to break $17.70 per ounce."

Pointing to the 200-day moving average in the Gold Price – seen by many technical analysts as 'key support' since the bull market began in 2001 –"any meaningful bounce from the [current level at $856 per ounce] could bring back a lot of money into Gold," says analysis from Swiss bank UBS, "as happened last year."

Trading right on its 200-day moving average during the typically quiet "summer doldrums" between late June and Sept., the Gold Price then leapt sharply higher in autumn '07, adding 53% inside the next six months.

Prior to last year's jump, however – sparked by the US Federal Reserve slashing the cost of borrowing below the rate of consumer-price inflation – the market dipped below Gold's 200-Day Average seven times since starting this bull market against the Dollar in spring 2001.

Back in the stock market, meantime, London's FTSE100 gave back all of Tuesday's gains by lunchtime on Wednesday, led lower by banking and finance stocks playing catch up with yesterday's losses on Wall Street.

US Treasury bonds were bid higher, pushing yields lower, while European government debt sold off once again.

Jürgen Stark of the European Central Bank repeated the ECB's warning that it "will do everything necessary" to fight price inflation, now running at a 16-year high in the Eurozone.

"The risks to price stability have increased," Stark told an interviewer this morning.

British manufacturers expect the rise in prices of manufactured goods "will continue almost unabated" over the next 3 months, according to the latest CBI survey.

In Argentina – where a 100-day farming strike threatens to spark the second government bond default this decade as tax revenues dry up – inflation expectations have doubled to average nearly 35% per year according to the finance dept. of Torcuato di Tella University.

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

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.

-- Posted Wednesday, 18 June 2008 | Digg This Article | Source: GoldSeek.com

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