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Gold tumbles 7% as stocks rise on positive data

Gold prices plummet as good news from US and China give global equities a boost

Gold prices fell by around 7% on Thursday August 25 after a round of surprisingly positive US and China economic data, released earlier this week, boosted US, European and Asian equity markets.

On Wednesday 24 August the US Commerce Department revealed durable goods orders jumped 4% as demand for autos and airplanes surged. The equity markets reacted positively to this news, as the better-than-expected data more than cancelled out the 1.3% drop in June.

On the same day an HSBC and Markit Economics report revealed that China’s factory output may contract slower in August than anticipated. A preliminary reading of a manufacturing index by the companies rose to 49.8 this month from a final reading of 49.3 for July.

Gold has fallen to below the $1,800 mark on Thursday, flirting with a 7% decline all day. However, global equity markets made another day of gains with a 1.3% rise on the S&P500 and moderate 1% gains across European bourses, as stocks flattened out ahead of the Federal Reserve chief Ben Bernanke’s speech on Friday.

In Asia, China’s Shanghai index led the rally with a near 3% gain, while all other major Asian exchanges, apart from India’s Sensex, closed up.

“The market is eagerly awaiting the meeting at Jackson Hole on Friday, where central bankers retreat for an economics conference and discuss ways to maintain the global economic recovery,” says Joshua Raymond, chief market strategist at City Index. “All eyes will immediately focus on one man however, the chairman of the Federal Reserve, Ben Bernanke. The market is awash with speculation and hope (as opposed to optimism) that Bernanke may announce or give an indication towards an impending form of quantitative easing to help stimulate the US economy and avoid it slipping back into recession.”

“Interestingly enough it was at this same point last year when Bernanke used the summit at Jackson Hole to first give the market indications that a second round of quantitative easing could be forthcoming should growth outlook slip further and so naturally there is a sense of déjà vu here.”

High gold prices are sustainable 
Friday, August 19, 2011


 

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