Gold pulls back as investors push US equities higher - 3 January 2007

Gold pulled back Wednesday on stronger than expected US data and a sharp drop in energy prices.

It dropped more than $11 per ounce – and also lost against Sterling, Euros and the Yen – after the ISM index of US manufacturing output showed a surprise rise in December.

Crude oil, meantime, dropped below $59 per barrel for the first time since November on milder weather in the north-eastern US.

"Everything is working against gold now," says one senior metals trader in Chicago. "It's the Dollar and the crude-oil break. This one's going to hurt."

US equities surged on the news, as did the US Dollar. That left British and European gold investors nursing smaller losses. By the close of trade in London, Sterling buyers were £2.50 worse off for the day. Eurozone buyers had lost €4 per ounce.

"It appears gold is running out of steam," said one US analyst earlier to Bloomberg. He was a gold bull on Dec. 4 but had turned bearish by Christmas Day.

"I'm not going to have another buy signal until it closes decisively above $665," he says. "There isn't a reason to drive the market higher at this point.''

Investors who bought gold instead of stocks lost out as 2006 ended, Bloomberg goes on. Investor who sold $1 million of shares on Dec.1 and bought gold were down around $37,000 by New Year's Day.

"We have been disappointed with gold's movement,'' says Christoph Eibl, a fund manager at Tiberius Asset Management AG in Zug, Switzerland. He sold gold from his $700 million holdings in November. "The arguments were around for a higher gold price and it didn't perform."

Will Herr Eibl come to regret his haste? Global stocks may have beaten gold in December. They may well beat gold this month, too.

But can the bull market in paper assets really keep running and running? If you see gold's current setback as a buying opportunity – a chance to get in while everyone else piles into US equities at new record highs – then click here and read on...