Gold prices came under renewed selling pressure in the pre-New York opening hours on Wednesday morning, this time responding to a declining crude oil and rising US dollar value.
Values quickly fell towards the lower $900's as participants continued to be frustrated by the metal's recent lack of response to outside drivers and by investor apathy.
Tuesday's ECB signals that interest rates will remain at least on hold or perhaps be raised in case inflation gets to uncomfortable levels has been somewhat offset by the fact that Fed watchers no longer expect a half point cut next week, and even a quarter point is beginning to look less than certain.
At last check the dollar was shown at 1.5945 against the euro and at 71.60 on the index, while oil was trading about $2 lower (at $117.45) than its record on Tuesday.
New York spot trading opened $8 lower, quoted at $908.20 on the bid side. Wednesday's calendar offered only mortgage applications and consumer comfort index figures, thus the main direction in gold will be... mixed as it has been since late last week.
While the current pause is still seen as a period of consolidation, the risk of a breach of the $900 level remains in place and could take bullion to the $880/$890 area.
We would expect some fresh buying to come into the market at such levels from quarters that are currently holding out on the sidelines. Silver lost 30 cents to $17.31 while platinum was off by $20 at $2005 and palladium slipped $6 to $450 per ounce.
Projections from the firm Investec on Tuesday still put the high in platinum this year near $2,400 on the near half million ounce deficit that could be tallied.
We keep getting a slew of correspondence from North American jewellers, designers and fabricators who are finding it extremely difficult to make a living under current gold price conditions. Herewith an excerpt from an e-mail just two days ago, from a Los Angeles businessman in the industry:
"While retailers on New York's 5th Avenue and Beverly Hill's Rodeo Drive might not feel the impact of the recent rise in the price of the metals, the small scale retailers at the local strip mall and the family owned jewellers are finding it more and more difficult to entice customers to purchase a ring or a necklace they used to be able to buy back in 2000 for $150, but now cost more than $500.
I can tell you now that the gold price, being more than three times higher than it was back in 2001, is severely impacting the jewellery sector in a much more negative way than it is being portrayed by mainstream media. And while most of America is reluctant to use the terms, 'recession' and 'inflation', we, in this market, have been dealing with the reality that inflation over the past four years has led us into this recessionary period.
While my family and company are able to manage through this difficult period by cutting back our expenses and keeping our purchasing to a minimum, we receive weekly, almost daily, reminders of the negative impact of the recent surge in the price of gold, when we receive calls from friends within the industry alerting us of yet another closing of a retail store or factory... companies that have been around for generations, here in the US or abroad in Italy, Turkey, Korea, etc.
This is an awful period for those of us in the jewellery sector. With our volume down 50-70% since 2001, it is most definitely not a happy time for us, not just my company, but for the gold jewellery industry in general. I believe the financial institutions recent interest and attraction to the bullion was one of the worst things that could have happened to the jewelry industry."
Mother's Day 2008 might be a trying time for the gentleman.
Jon Nadler is a Senior Analyst with Kitco Bullion Dealers, Montreal, US
