Gold price flop spells market caution

The sense of caution in financial markets continued Tuesday despite a run of positive United States (US) economic and corporate news that helped Wall Street rebound from its worst day for almost six months.

A day after investors around the world were spooked by big falls in commodity prices - notably gold - as well as growing concern over the recovery US and China, the world's two-largest economies, US stocks clawed back some ground despite the unease engendered by the bombings in Boston.

However, European markets, which hadn't fallen as much as their counterparts in the US on Monday, posted further declines Tuesday in the wake of a downbeat investor survey for Germany.

The closely-watched ZEW index fell from 48.5 to 36.3 in April in a sign of growing investor fears over the strength of the German recovery amid widespread debt problems in Europe.

In Europe, Germany's DAX was down 0.4 per cent at 7,683 while the CAC-40 in France fell 0.6 per cent to 3,689. The FTSE 100 index of leading British shares was trading 0.5 per cent lower at 6,310.

Some of the concerns that dominated trading on Monday were eased by news that US housing starts rose in March to a little over one million to a near five-year high.

Subdued inflation for the month together with another solid increase in industrial production also helped shore up the market mood.

And with Coca-Cola, Goldman Sachs and Johnson & Johnson reporting better-than-expected first-quarter profits, the scene was set for US stock indexes to recoup a chunk of their previous day's losses.

At midday, the Dow Jones industrial average was up 0.89 per cent at 14,729 while the broader S&P 500 index rose 1.08 per cent to 1,569.

A key focus over the past few days has been the gold price, which has fallen dramatically amid a welter of concerns, including fears that European governments may sell the precious metal as part of their debt-fighting measures.

MINOR BOUNCE BACK

By late-afternoon, London time, it was trading 1.2 per cent higher at US$1,377.

Still that was only a minor bounce back from Monday, when gold logged its biggest one-day decline in more than 30 years, tumbling US$140.30, or nine per cent, to US$1,361, just above its earlier low of US$1,357.10.

"At some point, gold could well be subjected to participants looking to own gold at cheaper levels than over the last few months," said David White, a trader at Spreadex. "But, critically, calling the bottom on any such process is hazardous at best."

The gold price isn't the only commodity that's taken a battering over recent days. Industrial metals have also faltered amid concerns over the global economic recovery, as has the price of oil.

The benchmark New York crude rate was down again Tuesday, falling 92 cents to US$87.79 a barrel in early trading.

- AP