Gold Slips as Fed, ECB Play Wait-and-See with Oil Price Decline; No Fire-Sale Yet, But "Certainly More Value"
-- Posted Monday, 4 August 2008 | Digg This Article | Source: GoldSeek.com
London Gold Market Report
from Adrian Ash
THE SPOT PRICE OF GOLD fell 1% from a three-session high early in London on Monday, dropping below $906 per ounce ahead of a busy week for central-bank decisions on interest rates.
Asian stocks slipped 1.5% on average as the US Dollar held steady on the forex market.
European equities were mixed, with the German Dax falling 0.7% after a poor reading of investor sentiment on the Sentix index.
Input prices for European businesses rose 8% in the year-to-June, the fastest rate on record, said the EuroStats data agency today.
"It may be August, but it doesn't seem like the precious metals are getting prepared for a quiet summer," says today's Gold note from Mitsui in London.
"The general picture for the metals is supportive...with a firm oil price and pressure on European equities."
Starting with the Reserve Bank of Australia tomorrow, monetary policy meetings will also be held by the US Federal Reserve on Wednesday, and then the European Central Bank (ECB) and the Bank of England on Thursday.
None is expected to alter their current rates – now set +2.75%, –5.0%, –0.1% and +1.2% respectively after accounting for inflation in domestic consumer prices.
Still looking to revive the world's inter-bank credit markets and slow the global real estate slump, policy-makers are also playing wait-and-see with inflation – hoping that the 18% drop in crude oil prices from last month's fresh all-time records will quickly reduce headline rates.
"Inflation angst should begin to recede now that food and energy prices are gradually coming off the boil," believes the widely-respected BCA Research in Montreal, Canada.
"Global growth is downshifting and the cyclical economic backdrop is no longer supportive of further commodity price gains."
Last month alone, "global commodity prices fell by 10%," notes Sean O'Grady in The Independent here in London, "indicating that the five-year-long commodities price boom is coming to an end and easing pressures on the Bank of England to raise interest rates this week."
"The US Fed will stand pat," agrees Sung Won Sohn, professor of economics at CaliforniaStateUniversity. A poll of 15 leading bond dealers held by Reuters on Friday says all of them expect the US central bank to stay on hold.
Commodity indexes continued to slip Monday morning, pulled down by base metals and agricultural prices even as crude oil bounced towards $126 per barrel on news that Tropical Storm Edouard is moving towards oil & gas installations in the Gulf of Mexico.
On Saturday US Secretary of State Condoleezza Rice said she will "begin again to prepare sanctions resolutions for the United Nations Security Council" if Iran – the world's fourth largest oil producer – does not halt its nuclear program.
"August is the worst month to trade commodities," reports veteran trader Kevin Kerr for MarketWatch. "The second worst is December. Quiet trading and fewer participants inevitably lead to thin and volatile markets.
"[But] the oil market and Gold are two great examples of markets that had incredible runs to the upside and now have over corrected to the downside. The fact of the matter is both commodities got a bit ahead of themselves and now have likely corrected too far as well. Therein lies the opportunity.
"While both oil and Gold probably have further to fall, they are both much more attractive to buyers than even a few weeks ago. We aren't at a fire sale yet, but we are certainly seeing more value.
"The [so-called] 'bubble' hasn't burst; it's just deflated a little bit. Look for it to grow to new levels by October."
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.
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-- Posted Monday, 4 August 2008 | Digg This Article | Source: GoldSeek.com
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