Gold Recovers and Stocks Bounce Ahead of US Interest Rate Cut
Commodities / Gold & Silver Mar 18, 2008 - 11:01 AM GMTBy: Adrian_Ash
SPOT GOLD PRICES ticked higher vs. both the Dollar and Euros in London on Tuesday, gaining more than 1.3% from an overnight dip against each currency as global stock markets bounced after Monday's shock losses.
By lunchtime in London – where the AM Gold Fix was set nearly $20 below Monday's record of $1,023.50 per ounce – the MSCI World Index stood 0.9% higher to show its first gain since Wednesday last week.
The Dax index of blue-chip German stocks reclaimed 160 of Monday's 269-point loss, while Wall Street futures turned higher on news that Goldman Sachs – the world's biggest investment bank – saw earnings fall by one half but still beat analyst forecasts in the three months ending Feb. 29th.
Lehman Bros. saw net earnings fall by 59% over that period, it said today. The bank is widely rumored to face a similar cash shortage to Bear Stearns before its $2 per share fire-sale on Sunday.
"Everyone wants to know how bad it's going to get," says Glenn Marci at DZ Bank in Frankfurt . "Will banks recover this year or will the crisis stay with us for longer?"
"I wouldn't be that surprised if [the Federal Reserve] went for a 100-basis points cut."
Ahead of the Fed's latest interest-rate announcement – due out 14:15 EST today – crude oil recovered $1.50 of Monday's $4.50 plunge to reach $107.56 per barrel, while the US Dollar held steady near yesterday's new record lows on the currency market.
Base metals led by nickel bounced from yesterday's multi-year record falls, but grain prices continued to slip away from their historic highs of early 2008.
"The worst is yet to come" in soft commodities, reckons Hiroyuki Kikukawa at IDO Securities in Tokyo . "People want out of all markets and will try to keep cash in their hands for now."
Gold was the only hard asset not to lose value against the US Dollar on Monday, ending the session 0.3% higher in New York . Amid the panic in bonds and stocks, Gold beat silver (down 1.9%), platinum (down almost 3%) and crude oil (down 4.1%).
The UBS-Bloomberg index of commodity prices sank by 4.5% yesterday, the sharpest fall in its 11-year history.
"[But] the Fed is eager to save the economy at any price, even inflationary pressure, and that is favorable for commodities," says Eugen Weinberg at Commerzbank in Frankfurt .
"If we have a cut of one point you'll see another spike in commodities."
A survey of 101 professional economists by Bloomberg News puts the median forecast for today's US Fed rate-cut – due out 14:15 EST – at 0.75%. Anything bigger would be the sharpest cut since 1984.
The prime minister of China , Wen Jiabao, said today he is "deeply worried" by both the US slowdown and its fast-sinking US currency.
"Global economic developments cannot but have an impact on China," Wen said at the close of the annual National People's Conference, adding that he's concerned about "when the US Dollar might reach bottom and what kind of [monetary] policy the US would adopt [from here]."
An un-named "authoritative institution" says $461 billion of hot money poured into China from overseas speculators in 2007, according to China Daily , pushing the nation's foreign reserves to $1.53 trillion.
Premier Wen today admitted that China will struggle to cap consumer-price inflation below his target of 4.8% in 2008. Last month inflation reached 8.7% year-on-year.
The United Kingdom today reported consumer price inflation rising at the fastest pace since May last year at 2.5% in Feb. The more trusted Retail Price measure rose 4.1% year-on-year, and the rising pace of inflation – threatening the need for higher interest rates from the Bank of England – helped push the Pound higher from Monday's 12-year lows vs. the Euro and Japanese Yen.
It also capped the Gold Price in Sterling just below £500 per ounce.
"People are looking for some kind of port in the storm," reckons Simon Weeks at Scotia Mocatta, the precious metals dealer.
"I would expect the Gold Market will outperform the other metals as people look for a safe haven. Excess cash is not going into anything speculative."
By Adrian Ash
BullionVault.com
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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2008
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