Gold slipped nearly $2 per ounce during the first-half of London trade on Tuesday, nearing the US open below $665, its lowest price since Thursday.
‘The Dollar is still the main driver of gold prices and there will be a set of important data points this week which may influence the Euro/Dollar exchange rate and hence gold,’ reckons Michael Widmer, director of research at Calyon Bank.
‘We expect gold to trade within a tight range as investors are unlikely to take big positions ahead of the minutes from the Fed meeting, Bernanke’s testimony and the US inflation data.’
Minutes from the most recent Federal Reserve meeting are due on Thursday this week. The Fed chairman, Ben Bernanke, begins a two-day testimony before Congress tomorrow. The latest US producer price inflation numbers will be released at 08:30 EST today, with Consumer Price Inflation due at the same time Wednesday.
‘The Fed chairman will remind his audience that inflation remains the bigger concern,’ says Gerard Baker in today’s London Times, ‘and he can be expected to be asked which inflation he means.
‘The headline rate looks dangerously high. The infamous ‘core’ (minus food and energy costs) is, if anything, a little on the low side for comfort.’
Inflation data already out in the United Kingdom sent the Pound to a fresh 26-year high against the Dollar above $2.0450 on the foreign exchanges this morning. The Retail Price Index showed a surprise jump to 4.4% per year, pushed higher by rising fuel and mortgage-interest costs.
‘The Bank of England aren’t taking any risks,’ says Karen Ward at HSBC, ‘and will continue raising rates in the meantime. We expect another hike in September’ – and anticipation of just such a move sent the price of gold for British buyers below £327 per ounce. The metal also ticked lower for French and German investors, down below €483 per ounce.
‘Spot Gold will have to close above $674 to rekindle further buying interest,’ says Christopher Langguth in the latest technical note from Mitsui. Although the trendline on his weekly chart beginning in July 2005 remains intact, ‘the price has been moving sideways since May 2006.’
In the all-important Indian gold market today, reports the Economic Times, investors continued to shift out of bullion and into Mumbai’s surging stock market, ‘fearing a rise in the metal’s value in the previous few trading sessions was overdone.’
Gold prices had earlier fallen in the Tokyo futures market too, dropping 0.8% on the April ’08 contract to the equivalent of $669.95 per ounce. The Nikkei equity index in Tokyo ended Tuesday 0.1% lower, while a raft of broker downgrades helped send the FTSE100 more than 0.8% lower by lunchtime in London. The broad FTSE EuroFirst 300 index of Europe’s top 300 stocks traded 0.6% down.
US stock index futures pointed lower ahead of the PPI inflation data, and Wall Street was nervous ahead of earnings reports from Merrill Lynch, US Bancorp and Wells Fargo. For the year so far, according to Bloomberg data, finance has been the worst performing major industry group on the S&P, and the only sector to record a loss year-to-date.
‘Financial shares have certainly been a weaker area of the market and continue to be under pressure,’ says Peter Dunay at Leeb Capital Management New York. ‘There is again that concern that inflation is looming. We are still vigilant about inflation and all this subprime stuff.’
Adrian Ash is editor of Gold News and head of research at www.BullionVault.com, the fastest growing gold bullion service online