Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Leaps on Failed Bailout Economic Deflation Fears

Commodities / Gold & Silver Oct 06, 2008 - 07:22 AM GMT

By: Adrian_Ash

Commodities SPOT GOLD PRICES jumped $34 early in London on Monday, bouncing well above last Friday's low at $820 to touch $860 an ounce as world stock markets sank in the face of desperate promises of Tax-Funded Aid from major governments.


Crude oil sank 4% to trade below $90 per barrel, an eight-month low. Soft commodities all fell hard, as did base metals, while the low-yielding US Dollar and Japanese Yen both rose sharply on the currency markets.

"The oil-gold-Euro correlation is well and truly busted," said a London trader to BullionVault by phone this morning.

"Oil is tumbling and the risk aversion trades are flying. The Yen is going through the roof now everyone's taking about deflation."

During the 1930s Great Depression, the purchasing power of Gold Bullion more than doubled for US investors as the Dow Jones index dropped seven-eighths of its value from top to bottom.

For Japanese investors, already suffering deflation in asset prices for nearly two decades, the purchasing power of Gold has risen by more than 85% since 1989.

The Nikkei stock index, in contrast, remains almost three-quarters off its top. Residential Tokyo real estate has just slipped back to 2005 levels, down by some four-fifths from the top of the late-80s bubble.

" Gold will [now] outperform its commodity peers as investors seek refuge from risks associated with the US Dollar, shaky banks and extremely volatile equity markets," reckons new analysis from BMO Capital Markets, the North American research and brokerage group.

"Long term, gold should benefit from a weakening trade-weighted Dollar, which is needed in order to help reverse the substantial global trade and current account imbalances (with China and others) in existence today.

"Other supportive factors include the possible monetization of the US's massive and growing public debt obligations, and rising physical demand coming from the developing world."

Following the final approval of $700 billion in tax-funded aid to Wall Street on Friday, South Korea today pledged $240 billion of foreign currency reserves to Seoul's biggest banks.

Germany promised on Sunday to back all private bank deposits, matching last week's pledge from the Irish government and sparking a fresh run of " Competitive Bail-Outs " in Austria and Denmark.

"Central banks are now being seen as the main providers of liquidity within these markets, and it's very bad for sentiment," said one State Street analyst in Hong Kong to Reuters this morning. Looking at the deeper problem of surging interest rates in the open market – a surge which has forced a collapse in Gold Futures and options trading – "if G7 central bankers cut rates in a co-ordinated way," says Steven Barrow at Standard Bank, "the market assumes it will be because all else has failed.

"Rate cuts, if they are to come in this way, could come very soon indeed."

Asia's main stock markets today dropped more than 5% of their value, while the Japanese Yen – previously used to fund highly geared bets outside Japan – jumped to a two-year high vs. the Euro.

For Japanese investors holding gold, the price in Yen held around ¥2,840 per gram. European gold buyers saw the Gold Price in Euros leap to €632 an ounce – up more than 4.2% from Friday's finish – as the single currency sank to a new 13-month low vs. the Dollar of $1.3545.

"What are investors going to do with the massive amount of dollars that the US has flooded out?" asks Dr Pongsak Hoontrakul, senior research fellow at Chulalongkorn University in Bangkok, speaking to The Nation.

"If investors do not want to hold the Dollar, what other choices do they have for reserve currencies?"

Investors trading the SPDR Gold Trust – the world's largest Gold ETF – last week pushed its holdings up to 755 tonnes. But with hedge funds and other leveraged speculators forced to raise cash to redeem clients, meet margin calls, and settle their debts, the trust shrank by two per cent on Friday.

The total number of Gold Futures and options contracts now outstanding shrank by almost 9% in the week-to-last Tuesday, according to new data from US regulator the Commodity Futures Trading Commission (CFTC).

Since peaking in January, outstanding volume in the Gold derivatives market has shrunk by more than one-third. The growing bid for physical metal, in contrast, has cleaned out coin shops worldwide, emptying even the largest retail gold dealers of the leading products.

Wholesale Gold Bullion dealers remain fully stocked, with turnover in London – heart of the world's professional gold market – seeing around $63 billion of physical trading per day.

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

© 2005-2022 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