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Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Gold Breaches $700 Barrier as Fed Fails to Contain Subprime Credit Crisis

Commodities / Gold & Silver Sep 10, 2007 - 07:55 AM GMT

By: Gold_Investments

Commodities Gold
Spot gold traded at a new 16 month high this morning and was trading at $704.00/704.50 an ounce as of 1215 GMT.

Gold has continued to show strength in Asian and European trading after last week's surge of $26 or more than 4%. Last weeks surge was likely due to strong physical demand, near record oil prices, the weaker dollar and then the worryingly bad payroll numbers on Friday. These led to gold rising and the Dow declining 1.9% and the S&P 500 falling 1.4% for the week.


The psychological $700 mark has been breached with a weekly close above $700. There may be some profit taking and consolidation prior to a likely near term challenge of the 27 year highs of $722 that was reached in May 2005. We continue to believe there is a good chance gold will challenge its record high price in 1980 of $850 before the end of 2007.

Little commented upon by many but of importance is the fact that the close above $700 was only the 5th daily close above $700 in 26 years.

According to the World Gold Council, gold bullion held in StreetTracks Gold Trust, the biggest exchange-traded fund backed by the metal, reached a record 549.42 metric tons.

As we predicted, the U.S. non farm payrolls for August was to the downside showing that problems in financial markets are now spreading from Wall Street to "Main Street" and the wider U.S. economy. The dollar has fallen below the key 80 mark on the US Dollar Index. Its weakness continued in Europe this morning and it has fallen to a new 15 year low at 79.91. The notion that the U.S. dollar or U.S. treasuries are safe haven currencies or assets is likely to be seen as erroneous in the coming months.

$140 billion of commercial paper comes due next week which will further challenge the already straining financial system. In the UK alone, The Telegraph reports that "Britain's biggest banks could be forced to cough up as much as £70bn over the next 10 days, as the credit crisis that has seized the global financial system sparks a fresh wave of chaos. Almost 20 per cent of the short-term money market loans issued by European banks are due to mature between September 11 and September 19. Senior bankers fear that they will have to refinance almost all of these debts with funds from their own coffers, putting a further strain on bank balance sheets."

Silver
Spot silver is trading at $12.57/12.59 an ounce (1215 GMT).

PGMs
Platinum was trading at $1288/1292 (1215 GMT).
Spot palladium was trading at $332/338 an ounce (1215 GMT).

Forex and Gold
For the week, the U.S. Dollar Index declined 1% to a 15 year low of 79.96, a 15-year low. The dollar declined against nearly all currencies but most against the Japanese yen - 2.3% decline. It also declined against the Swiss franc 1.7%, the Norwegian krone 1.5%, the Swedish krona 1.5%, the Danish krone 1.1%, and the Euro 1.1%. The few currencies weaker than the U.S. dollar were the New Zealand dollar declined 1.9%, the Mexican peso 1.1%, the South African rand 0.9%, and the South Korean won 0.3%.

The Federal Reserve can no longer claim that the subprime and credit crisis is 'contained' and not having an impact on the overall economy. After Friday's terrible non-farm payrolls number, the U.S. interest rate curve is pricing in 75bp of easing. The dollar has been completely stripped of its safe haven status as job losses point to weak spending in the months to come as well as the risk for a recession. Retail sales are the most important release on the economic calendar this week. Currently trading sub 1.38, expect the EUR/USD to make a run towards its all time high of 1.3853.

Oil
Light, sweet crude for October delivery lost 62 cents to $76.08 a barrel in electronic trading on the New York Mercantile Exchange by midmorning in Europe. October Brent crude fell 53 cents to $74.54 a barrel on the ICE Futures exchange in London.

Gold Investments
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Gold Investments
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Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

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Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

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