Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Gold Rises as Stock Markets Tumble

Commodities / Gold & Silver Sep 16, 2008 - 08:14 AM GMT

By: Adrian_Ash

Commodities

SPOT GOLD PRICES recovered an early 2.1% tumble on Tuesday, rising above $780 an ounce as Japan's Nikkei stock index closed almost 5% lower after Tokyo traders got back to work following a public holiday on Monday.

The Japanese Yen shot 3% higher on the forex market as "carry trade" debts – used to fund better-paying trades outside zero-interest-rate Japan – were pulled home in response to the weekend's demise of Lehman Bros. and Merrill Lynch, plus the ongoing threat of collapse at Washington Mutual and AIG.


Oil prices sank below $92 per barrel while the FTSE100 index here in London fell 6.7% below last week's close.

Short-term US government bonds slipped back, meantime, unwinding half of Monday's record drop in 3-month yields and pushing the yield on six-month Treasuries more than 0.14% higher to 1.61%.

But "don't be surprised if the US Fed cuts interest rates [today] as a last resort to save the financial system," as Subodh Gupta, an analyst at Anand Rathi Commodities in India – the world's No.1 gold consumer – said to Reuters this morning, not even with US consumer-price inflation likely to stand at 5.5% for August when announced at 08:30 EST.

" Gold may bounce back on the Dollar's weakness," he believes.

The US currency held the Euro below $1.42 and capped the British Pound at $1.78 this morning, while the futures market raised the odds of a 0.25% cut at today's Fed meeting to better than nine-in-ten – up from a mere one-in-twenty this time last week.

Medium-term Japanese bond prices meantime leapt to catch up with the global "safe haven" panic, pushing the yield offered by five- to ten-year debt down to 1.0% as traders backed the Bank of Japan to keep its rates on hold for the 16th month running tomorrow (Weds).

The yield offered by UK government bonds also sank this morning, despite a record jump in the official rate of inflation to 4.70% annually – almost twice the Bank of England's target.

Under UK regulations, the BoE chief Mervyn King was obliged to write an open letter to the finance minister, explaining why inflation is now so high. But after blaming "largely unanticipated" rises in the cost of raw materials globally, he instead claimed that the current slowdown in economic activity "could, if severe, result in inflation falling below [the 2%] target in the medium term."

Six-month UK gilt yields dropped 119 basis points on the news to 4.47%.

Growth in the UK money supply has held above 10% year-on-year since the spring of 2005 – and "Few empirical regularities in economics are so well documented as the co-movement of Money Supply and Inflation ," as Dr.King himself noted in a series of speeches early this decade.

German Bund prices also rose sharply on Tuesday, pushing two-year yields down 13 basis points to 3.59% despite the official EuroStat agency pegging Eurozone inflation at 3.80% per year.

"Things are not adding up," reckons Bart Melek, global commodity strategist for the BMO funds in Toronto. "Markets are not behaving in a consistent manner.

"Negative [real] interest rates, systemic risks in the financial sector and the credit crunch are all making many fixed-income assets, equities, and real estate a risky proposition."

In due course, however, "investors could well start building their gold positions again given other asset classes have lots of risk and only limited upside," Melek believes.

Following the weekend's demise of two Wall Street giants, Monday saw the credit rating of AIG – the world's biggest insurance group – cut two notches by the major rating agencies.

The company said last month that a one-notch downgrade would force it to find an extra $13.3 billion in collateral for raising new funds. Any further cuts will trigger "early termination" payments of $18bn on AIG's senior debt, says the Financial Times .

A failure at AIG would cost Bill Gross's Pimco – the world's largest bond fund managers – some $760 million according to Bloomberg, since he sold "credit default swaps" to insure the ailing insurance group's debt early this summer.

Over at Washington Mutual meantime – now vying with AIG as "most likely to fail" in the wake of Lehman and Merrill's demise – "Think happy thoughts!" said a morale-boosting e-mail from Bob Bjorklund, head of Capital Strategies, to his staff last Friday.

Yesterday the sixth-largest US bank tumbled 27% at the New York Stock Exchange, taking its losses since March to more then four-fifths and valuing WaMu down at the take-overprice then offered by J.P.Morgan Chase.

WaMu's bonds were downgraded to "junk" status Monday by the three major credit-ratings agencies. It's set to take a $19 billion hit from bad mortgage loans over the next 30 months.

J.P.Morgan is no longer looking to buy WaMu, says a source quoted by the Seattle Times . Bank of America chief Kenneth Lewis – who bought Merrill Lynch for $50bn at the weekend – told CNBC yesterday that he's not interested in WaMu, either.

"The failure of a bank its size would test the strength of the US deposit insurance system," says the Financial Times , "and its ability to maintain the confidence of the nation's savers."

Washington Mutual held some $143bn in FDIC-insured deposits at the end of June – three times the size of the Federal Deposit Insurance Corporation's funds.

"I've got to say our banking system is a safe and a sound one," US Treasury secretary Hank Paulson assured reporters late Monday. "The American people can be very, very confident about their accounts in our banking system."

Credit spreads on US investment-grade corporate bonds – a key measure of investor stress – jumped further on Tuesday, while the cost of two-year "swap" loans held almost 0.15% above government bond yields – "the highest since the beginning of the credit market meltdown," according to Manqoba Madinane at Standard Bank.

In precious metals, "Financial market turmoil is calling the shots," he goes on, with industrial metals platinum and palladium – used primarily in auto-catalysts – sinking by 8% and 11% respectively so far this week.

But "the increased systemic risk in global financial systems – with the greenback losing direction – should mean safe-haven fund flows for gold.

"Upside potential [in Gold ] could remain high today."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules