GOLD SLIPPED as the London session began Tuesday, dropping nearly $3 per ounce from the overnight high in Asia to record an AM Fix of...

... $655.10 per ounce. The metal then rallied ahead of the US open, recovering $656 in the spot market and reaching $656.10 for July Comex gold futures.

But pressure remains as the Dollar continues to find friends in the currency markets.

"We've seen gold push higher since the end of last week," said Gerry Celaya of Redtower Research in Aberdeen, Scotland to Bloomberg earlier, "mostly because we think the market thinks the Federal Reserve will not be raising rates.

"We think they're wrong."

Also thinking about US interest rates, Stephen Briggs at Societe Generale in London reckons that "the Dollar bear market is coming to an end.

"The main driving force of the whole gold bull market has been the Dollar. If we see the single most important factor working in reverse, gold will struggle."

Briggs fails to spot the 10% average annual gains in gold vs. the Euro since 2000. Nor does his analysis note gold's 70% rise vs. the British Pound since then, nor the one-third rise in the Canadian-Dollar price of gold starting in early 2005.

Whatever the long-term virtues of bucking today's growing consensus on the US Dollar's remarkable comeback, however, the Euro fell from a two-week high vs. the Dollar on the currency markets this morning.

Following a much-weaker than expected reading from the ZEW investor sentiment index in Frankfurt, Germany, that helped pull gold and other Dollar alternatives lower, too. The European single currency dropped half-a-cent to $1.3390 on the news. The British Pound also slipped from its highest level since May 7.

Tomorrow brings data showing UK money-supply growth – a gnawing concern for Bank of England policymakers since its annual rate began rising at double-digits in spring 2005 – plus minutes from their June interest-rate meeting.

The British Pound price of gold traded £1 lower to £330. German and French investors saw the Euro-price of gold hold below €490 per ounce.

"Last week’s neutral activity in the spot gold market created a two-week harami reversal pattern," writes Christopher Langguth for Mitsui's weekly technical analysis report.

Harami patterns occur when volatility suddenly reduces from one week to the next – in this case, a volatile week of falling prices was followed by a flat and quiet week of trading.

As a result, says technical theory, the declining trend from early April may now reverse after the selling pressure on gold petered out last week.

"The gold price is still above a long-term up trendline that began in July 2005," Langguth goes on. "If spot gold reaches $675.00 the buying should become heavy."

Gold trading was subdued overnight in Asia, with Hong Kong closed for a holiday. But in India, reports the Economic Times, physical gold demand is now beginning to pick up due to the onset of the next wedding season. Local traders reported increased buying by stockists and jewelry fabricators.

Oil prices pulled back from a 10-month high in London above $72 per barrel. The European equity markets traded flat. US stock futures pointed lower.

"Firmer oil prices and the Dollar's slight falls against the Euro encouraged buying to push up gold above $655," noted Akira Doi, director at Daiichi Commodities in Tokyo to Reuters, "but the gold market would need more news to advance further."

Tocom gold futures for delivery in April '08 slipped 0.45% against the Yen today, closing at the equivalent of $661.58 per ounce.

"Gold will be under pressure as investment funds will be keen to lock in their profits ahead of the end of the second quarter," added Doi. But with short positions in the Tokyo gold market now growing, stop-loss short-covering could be triggered if gold rises above $660 per ounce, he went on.

In the broader commodities market, copper prices fell sharply after Monday's US home-builders' sentiment index showed a sharp fall in confidence.

The United States is the world's second-largest consumer of copper after China – and the average US home contains 400 pounds of the metal in wiring and pipes, reports Bloomberg.

This month, however, the National Association of Home Builders/Wells Fargo index fell to its lowest level since the recession of 1991.

Today sees the release of fresh US housing data, this time showing new building permits granted as well as the volume of new-home construction begun in May.

Wall Street expects housing starts to have dropped by 3% from April. Last quarter, notes Bloomberg, the number of housing starts fell to a decade-low – and the US Dollar sank against 11 of the world's 16 most heavily traded currencies.

If you'd like to buck the growing consensus around the rallying US Dollar today – and hedge your investments against the risk of a fresh decline in the greenback using physical gold bullion – be sure to visit BullionVault now.


Adrian Ash
BullionVault


City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

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