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Gold and Silver Rally As Financial Crisis Deepens

Commodities / Credit Crisis 2008 Sep 15, 2008 - 06:20 AM GMT

By: Mark_OByrne

Commodities Best Financial Markets Analysis ArticleGold and silver rallied Friday as the crisis on Wall Street deepened with gold up $17.80 to $759.80 and silver up 21 cents to $10.74. The rally continued in Asia overnight when gold surged more than $20 to over $785 before gradually giving up those gains in early trading in London. Gold's gains in Asia have been eroded as oil prices have fallen sharply (some 4%) and in extremely volatile trading the dollar has recovered sharply from steep overnight lows ( dollar has rallied 1.6% from 1.4478 to the euro to trade back up to 1.4250).


With equity and currency markets in turmoil, talk is growing as to what the Fed will do at tomorrow's meeting to help cope with the fallout. Markets will be looking to see if the central bank reinforces the recent change in expectations that the next move in US rates could be a cut instead of the near term increases that traders had been predicting up until very recently. These recent developments have caused the market to now price in a 50% chance of a 25 basis point interest rate cut by the Federal Reserve tomorrow. This will see the dollar come under pressure again and is bullish for gold.

Gold's safe haven credentials  are set to come into their own again as the global financial and capitalist system itself is creaking at the seams. It is arguable that systemic risk has never been as high as this (even during the Great Depression) and unfortunately conditions are set to get markedly worse before they get better.

Financial contagion is spreading throughout the financial system and most worryingly, it is now spreading from Wall street to main street.

Besides Lehman Brothers filing for bankruptcy, there are increasing worries regarding the solvency of Merrill Lynch, Washington Mutual, Citigroup and Wachovia Corporation. Not to mention many airlines and the huge U.S. automakers who are also at risk of bankruptcy.

With credit tightening, gas prices surging and house prices crashing, first-half auto sales in the United States plunged to the lowest level in a decade-and-a-half. The result has pushed U.S. automakers, led by General Motors Corp to the brink, raising questions about their ability to ride out the downturn and raising talk of $25 to $50 billion bailouts. Although the industry understandably prefers to call them low interest development loans.



In one of the most radical reshapings in Wall Street history the Federal Reserve is to again make it far easier for financial institutions to access Fed liquidity by easing terms on its borrowing facilities and accepting a much wider range of assets as collateral – this incredibly may even include equities. Federal government debt is surging and at risk of going exponential. This has huge ramifications and is extremely bearish for U.S. debt markets, U.S. treasuries and the U.S. dollar.

The deteriorating situation in the world's largest insurer is extremely concerning and possibly a more serious development to the insolvency issues on Wall Street. As one of the largest reinsurers in the world, its failure could lead to a cascading waterfall effect with serious ramifications for businesses and corporations around the world.  A credit crisis followed by an “insurance crisis” where businesses internationally cannot insure themselves against risk is the last thing the global economy could handle right now.

In the light of the continuing deterioration of the financial system and the increasing risk of contagion in the financial system and the wider global economy, gold remains very undervalued and will continue to outperform other asset classes in the coming weeks, months and years.

http://www.golddrivers.com/ alt/charts.asp

Gold and Silver
Gold is trading at $773.90/774.50 per ounce (1115 GMT).
Silver is trading at $10.84/10.91 per ounce (1115 GMT).

PGMs

Platinum is trading at $1156/1166 per ounce (1115 GMT).
Palladium is trading at $233/236 per ounce (1115 GMT).

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold and Silver Investments Limited
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London,
EC3V 3ND
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
Email info@www.goldassets.co.uk
Web www.goldassets.co.uk

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

Mission Statement
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.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

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.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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