Gold Cuts 2009 Gains to 30% as Deflation Hits Europe, China Hits New Year "Gold Rush"

The price of Gold dropped to a 3-session low at the start of London dealing on Wednesday, cutting its 2009 gains vs. the Dollar to 30% and losing 2.1% for the week so far.

World stock markets fell together with government bonds. The US Dollar ticked higher on the forex market.

Crude oil held near a 77% gain for the year above $79 per barrel.

Copper and zinc traded at the London Metal Exchange ticked higher from Tuesday's 15-month closing highs.

"With [the Tocom Gold Futures exchange in] Japan out today and the holidays upon us, trading has been thin overnight and the market remains vulnerable to sharp moves," says a note from precious metals dealer Mitsui.

"The whole key to the gold market is the Dollar," reckons Marty McNeill, a trader at R.F.Lafferty Inc. in New York.

"We could have some strength in the Dollar going into the New Year."

"Between Christmas and year-end, the volume in the market shrinks rather drastically," says Afshin Nabavi, head trader at MKS, the Swiss refinery group, also speaking to the Wall Street Journal.

"Because of scale-down buying by traders looking to sell onto jewelers, the market is probably not as low as it could be."

The China Daily reports a "rush" to Buy Gold as the Chinese New Year shopping season begins, with major department stores slashing jewelry prices by 3% to launch their promotions.

China National Gold, a major retailer, claims to have doubled its sales last weekend.

The Chinese year of the Tiger starts on Feb. 18th. Chinese households are now the largest single market for privately-bought gold, overtaking India decisively in 2009.

Meantime in Tokyo on Wednesday, the Nikkei stock index lost 0.8% on its last trading day of 2009, ending the year higher by one-half from March's quarter-century lows as shares in Japan Airlines plunged to a record low on fears the failing carrier is about go bankrupt.

Today the 16-nation Eurozone reported deflation in its money supply, with the broad M3 measure contracting by 0.2% last month from Nov. 2008.

The European Central Bank's target rate – set when the Euro was launched a decade ago – was for 4.5% money-supply growth year on year.

M3 growth in the 350-million citizen currency union hit a 30-year peak of 12.3% annually at the end of 2007.

German Bunds fell in price, however, driving yields up to new 2009 highs above 3.37%.

Ten-year UK gilt yields rose above 4.09% – a fresh 2009 high – as the Pound fell hard to new 11-week lows beneath $1.5860 on the currency market.

The Euro gave back Tuesday's brief rally above $1.4400, trading in a tight range around $1.4330 and holding the Gold Price in Euros above €760 an ounce.

British investors looking to Buy Gold today saw prices in the wholesale professional market dip to £688 an ounce – also more than 24% higher for 2009.

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Adrian Ash runs the research desk at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern and FT Deutschland; Italy's Il Sole 24 Ore, and many other respected finance publications.

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