Gold tumbles on stronger dollar, weaker oil prices

Thomson Financial
Thursday, March 20, 2008

Gold continued to tumble in early London trade as book-squaring ahead of the Easter break was expedited by a stronger dollar and weaker oil prices.

At 10.06 am, spot gold was trading at 911.70 usd an ounce against 945.50 usd in late New York trade yesterday.

Gold hit an all-time high of 1,032.50 usd an ounce on Monday after the fire sale of Bear Stearns (nyse: BSC - news - people ), but has since been pressured sharply lower in the wake of the US Federal Reserve's smaller than expected rate cut on Tuesday.

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The Fed's 75 basis point cut has boosted the dollar, with many currency traders having priced in an even bigger drop. With gold acting as an alternative to the greenback, prices have come off.

Mark Pervan, commodity strategist at ANZ bank said: 'Gold prices have fallen by 70 usd an ounce or 7 pct in the past 3 days on perceived signs that the bullish drivers that pushed gold up 50 percent in the past six months -- heightening financial market risk, a falling US dollar and a rising oil prices -- may be dissipating.'

The stronger dollar has pressured oil and other commodities lower, stripping support from gold which investors use as a hedge against inflation concerns.

Gold's sharp sell-off after rallying above 1,000 usd was perhaps to be expected according to some analysts, though few are prepared to call an end to the precious metal's bull-run, given the potential for further shocks in the current economic climate.

'Given the strong gains seen across the complex this quarter and the aggressive influx of investor hot money in recent weeks it comes as no great surprise that the metals correction has been just as swift and aggressive,' said James Moore at TheBullionDesk.com.

Full article here.

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