Gold Market Report

Wholesale gold prices drifted lower in London after rising in Asia on Friday morning, set for their biggest monthly drop against the Dollar since the Lehmans' crash of Oct. 2008 but finishing the third-quarter of 2011 more than 13% higher.

U.S. equities and crude oil prices have lost 12.5% since end-June. Copper has fallen over 25% and the silver price has lost 13.1%.

New data this morning showed sharper-than-expected falls in French consumer spending and German retail sales.

U.S. consumer confidence and manufacturing reports were due later on Friday.

"The [gold and silver] market suddenly seems quiet in this timezone," said a Hong Kong dealer in a note this morning, noting "much lower" trading volume ahead of China's 'Golden Week' holidays, which start on Saturday.

The China Daily cites one research forecast of 2.2 million people taking a foreign holiday next week, set to spend some $2.1 billion overseas.

"We don't think the October National Day holidays in China will push down gold prices much," a Hong Kong investor is quoted by the Platts news & data agency, "because we see strong investor demand in other areas of the world."

Friday lunchtime in London saw spot gold prices in the wholesale market slip back below $1620 per ounce—a new all-time high when first reached in late July, but almost 16% below the new record high of Sept. 6th.

The U.S. Dollar rose again versus both the Euro and Sterling today, while major government debt prices also pushed higher, nudging 30-year U.S. interest rates back down below 3.00%.

Global stock markets meantime ended their worst 3-month fall since late 2008 by falling more than 1% in Asia and losing over 2% in Europe.

"We now expect the Euro area to slide into recession in the fourth quarter of this year," writes J.P.Morgan economist David Mackie in a new report.

"The rout over the last couple of months in European equities may have been a lot worse than the U.S.," says Albert Edwards at Société Générale, "but it has merely taken us back to the forward [price/earnings ratio] seen at the market's nadir in March 2009.

"Add in the recessionary impact on profits which have already begun to decline and European equity prices might fall a lot further yet."

"[It's] time to think the unthinkable and start printing again," says the Financial Times' economics columnist Martin Wolf.

"The alternative is likely to be a lost decade. The waste is more than unnecessary; it is cruel."

Following yesterday's approval by the Berlin parliament of a 70% rise in Germany's cash guarantees to the European Financial Stability Facility (EFSF), "Eurozone finance ministers are expected to come up with new plans to ease the debt crisis, and the [European Central Bank] may lend a hand when it meets next Thursday" by cutting interest rates, says Steve Barrow at Standard Bank.

"We'd envisage the possibility of a sharp rally but. . .the effect [will] fizzle out pretty quickly."

Looking back to this month's U.S. monetary policy change, "The Fed's Operation Twist was largely priced into the fixed income market through a sharp fall in long-term yields between end-July and mid-September," says the latest precious-metals analysis from Nic Brown and the team at French investment bank and bullion dealers Natixis.

"During [that] time, gold prices rallied by more than $240 per ounce. Hence there was little further benefit to be derived from this support," leaving gold to fall sharply after Fed chairman Bernanke confirmed his plan to sell $400 billion of short-term U.S. government debt in exchange for longer-dated Treasury bonds.

However, "with the very real prospect of a messy Greek default over the coming weeks or months, we are hesitant to suggest that the gold price rally is finished just yet," Natixis concludes.

Adrian Ash
Bullion Vault

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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 head of research at BullionVault—winner of the Queen's Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body—where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

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