Capital Gold Group Report: Forbes.com - Gold Correction No End to Bull Market
03.20.08, 9:29 AM ET
LONDON (Thomson Financial) - Gold fell over 25 usd on the day as it continued to correct lower from recent record highs, with a stronger dollar and weaker oil prices pushing prices down ahead of the Easter break.
At 1.02 pm, spot gold was trading at 920 usd an ounce against 945.50 usd in late New York trade yesterday, having at one point dipped as low as 904.05 usd before recovering on bargain hunting.
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.
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.
'The smaller-than-expected Fed Funds rate cut and the emphasis on inflation risk in the Federal Open Market Committee statement have effected a reassessment of the further outlook for US monetary policy,' said analysts at Dresdner Kleinwort. 'As the market regards the potential for another rate cut as small, gold and other metals are under pressure,' they added.
The stronger dollar has also 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.
'Given that gold has rallied considerably since breaking above 850 usd an ounce with little in the way of a correction, the current pullback may be better for gold long term and could entice physical demand back into the market,' he added.
Demand from jewellers has been hit hard by the recent rise in gold prices, but pent-up buying interest is expected to provide good support for the precious metal as the price comes down.
UBS (nyse: UBS - news - people ) has reported strong buying interest out of Asia since prices have come down to lower levels.
Among other precious metals, silver fell to 17.26 usd an ounce against 18.41 usd. On Tuesday, the metal hit a 27-year high of 21.36 usd, but gold's sell-off has dragged silver sharply lower.
Platinum also fell, trading down at 1,806 usd an ounce against 1,908 usd. The stronger dollar has pressured prices, while hopes the power crisis could be easing in top producer South Africa, which has propelled prices to a series of record highs in recent weeks, has also weighed on the white metal.
South Africa's government has backed an application by state-owned power company Eskom to raise tariffs by 60 pct to help meet rising electricity production costs and fund energy conservation programs.
Power shortages have reduced the amount of electricity available to the energy intensive mining industry, leading to short-fall fears in the platinum market as almost 80 pct of the metal comes from South Africa.
Sister metal palladium tracked platinum south, falling to 422 usd an ounce against 456.75 usd.
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