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London Gold Market Report

Fri, Jul 18 2008, 12:46 GMT
by Adrian Ash

BullionVault.com

Gold Slips as Dollar Bounces; George Soros Rumored "Long Gold, Short Oil" as Wall Street Losses Mount; UK Credit Creation Jumps to New All-Time Record

THE SPOT PRICE OF GOLD dropped 1.3% at lunchtime in London on Friday, sliding into the US open – and heading for its first weekly loss in five – as world stock markets ticked higher.

The US Dollar rose on the forex market. Crude oil futures jumped 2.1% – "a dead cat bounce," according to one trader – after suffering their worst drop since Dec. 2004 so far this week.

"There was a story out yesterday that George Soros had shorted oil and bought Gold," notes Mitsui, the precious metals dealer in London, pointing to a story at Forbes.com.

Forbes cites the current low in the Oil-Gold Ratio as the reason behind Soros's rumored long gold, short oil position.

"How much this directly affected the market is unclear," Mitsui goes on, "but there certainly appeared to be more support for the precious metals late in the day and there is a firm tone in London this morning.

"With the Gold Market holding above $950, the upward trend is still intact for now."

George Soros – co-founder of the Quantum Fund with the legendary Jim Rogers in the 1970s – has reportedly traded this gold bull market all through this decade, adding to the $100 million profit he made from gold in 1993.

"Gold has had a strong run from July 8 to 15," said David Thurtell of BNP Paribas to Bloomberg earlier, "and you're always going to have some profit taking after that."

"The decline in oil yesterday supported capital flows into US equity markets," says Manqoba Madinane at Standard Bank in Johannesburg, "which supported the Dollar through the New York trading session.

"[But] with credit spreads trending sideways, at elevated levels, and crude oil prices likely to remain resilient, Gold could attract some bargain buying at current prices."

The Western world's largest banking group, Citigroup, today posted a $2.5 billion loss and said it's laid off 11,000 staff so far in 2008.

Merrill Lynch, the third largest investment bank in the US, last night reported a worse-than-expected loss of $4.9bn for April to June.

The fourth quarterly loss on the run, Merrill's "difficult and disappointing" results are forcing the sale of its stakes in Bloomberg News and the Blackrock fund management firm.

US mortgage giant Freddie Mac, the government-sponsored agency, is said by the Wall Street Journal to be seeking $10 billion in a new capital issue.

Meantime on the currency markets, the European single currency fell vs. the Dollar, dropping below $1.5850 – almost two cents beneath Tuesday's new all-time record high – after ECB chief Jean-Claude Trichet forecast the "trough" in economic growth would run to October.

Speaking to The Irish Times in Dublin, Trichet pointed to "growth risks [including] the very significant financial market correction, the possible further increases in oil and commodity prices, and the possible unwinding of global financial imbalances."

Here in the United Kingdom, however, financial imbalances continue to mount, with private-sector debt growing by £50 billion ($100bn) in June – a new monthly record – according to the Bank of England today.

June's jump in new debt more than made up for May's Decline in UK Lending, and topped the previous record set in April. It also took the growth in private debt for the first-half of 2008 above £154bn ($307bn) – outstripping the entire growth in new credit during 2003 and keeping the UK on track to match 2007's full-year record.

But the risk of further money-led inflation, coming hard on the heels of this week's 16-Year Record in UK Inflation, failed to buoy the British Pound on the currency market today.

With the Bank of England unlikely to raise interest rates while turnover in the housing market sinks to three-decade lows, the Pound slipped back below $2.00.

The Gold Price in British Pounds rose above £480 per ounce, more than twice its price of three years ago.

"Volatile stock markets and a lack of confidence in the UK banking system has boosted demand for gold bars and coins from private investors to levels not seen for 25 years," reports The Daily Telegraph online today.

"Tens of thousands of investors have rushed to Buy Gold from bullion dealers over the past year."

Published on  Fri, Jul 18 2008, 12:47 GMT