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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold Remains Strong as Subprime Crisis Turns Into Full Blown Credit Crisis

Commodities / Gold & Silver Nov 09, 2007 - 09:11 AM GMT

By: Gold_Investments

Commodities Gold
Gold was up $4.20 to $835.20 per ounce in New York yesterday and silver was up 18 cents to $15.47 per ounce. Gold has since treaded water and has traded sideways in Asian and European trading and is trading at $832.60 at 1130 GMT. Gold is down marginally in GBP and EUR with the euro and British pound strengthening somewhat. It is trading at £394.60 GBP (down from £395.20 ) and €566.50 EUR (down from €568).


The credit crisis has now gone way beyond a 'subprime crisis' and it is now a full blown property and credit crisis which looks like it will result in a serious recession in the U.S. Oil at over $95 per barrel is not helping the already embattled U.S. consumer. The mystery is how stock markets in the U.S. have remained so resilient given these increasing macroeconomic risks. However it is likely that they will be the next pin to drop. Growth is decelerating in the U.S. as warned by Ben Bernanke yesterday and U.S. dollar denominated assets such as bonds and equities are likely to be marked down in value in the coming months with gold receiving a continuing safe haven bid.

Mark Hulbert of Marketwatch believes that the lack of bullishness or irrational exuberance on behalf of gold timing newsletters is a contrarian positive indicator for the gold price even in the near term.

"On one hand, the market has been impressively strong in recent weeks and months, and is now fast closing in on its all-time, set 28 years ago in January 1980. On the other, the prevailing sentiment among the gold-timing newsletters I track is nowhere close to being as exuberant as I otherwise would have expected. This is especially noteworthy, given the stereotype of gold timers as being overly enthusiastic about the yellow metal, ready to use any excuse to jump on the bullish bandwagon. This curious contrast bodes well for gold's near-term prospects, according to contrarian analysis."

The FT reports that long-term commodities prices are braced for a wave of investments as two leading banks launch indices that will make it easier for investors to access this increasingly popular asset class. Institutional investors, such as pension funds, have until now concentrated their commodities investments at the front of the futures curve. However, the vehicles, launched separately by BNP Paribas and JPMorgan will allow investors to place bets on indices of commodities futures as far as three years ahead.

Forex and Gold
The dollar has fallen again this morning and hit new record lows versus the euro at 1.4751 and at 2.116 versus sterling. Fears are growing that more U.S. financial firms will be hit by credit market turmoil and reinforced expectations that the Federal Reserve will cut interest rates further.

Such worries came to the fore again after ratings agency Standard & Poor's said yesterday that a collateralised debt obligation (CDO) managed by State Street Global Advisors may have started selling assets. The report raised worries that a wider array of structured securities may do the same, and helped send the dollar to 26-year lows against sterling and 12-year troughs versus the Swiss franc. There are fears that the credit turmoil and sub-prime related losses may engulf more U.S. banks.

The dollar has now weakened against nearly every currency in the world and only the Zimbabwean dollar is weaker against the dollar.

Silver
Silver was up 18 cents to $15.47 yesterday and is trading at $15.42 at 1130 GMT.

PGMs

The non-monetary metals have fallen in conjunction with some other commodities and base metals.
Platinum was trading at $1448/1452 (1130 GMT).
Spot palladium was trading at $369/374 an ounce (1130 GMT).

Oil
London's benchmark Brent crude contract for December delivery was down 11 cents at 92.68 USD per barrel. Earlier this week, the contract hit an all-time high of 95.19 USD. Meanwhile, New York crude for December delivery was up to 96.01 USD per barrel, having hit an all-time high of 98.62 USD Wednesday.

Gold Investments
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