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Gold Breaks Higher as Global Stock Markets Crash

Commodities / Gold & Silver Oct 10, 2008 - 08:35 AM GMT

By: Adrian_Ash

Commodities SPOT GOLD PRICES to a new 11-week high early Friday before slipping back to $905 an ounce for US investors as world stock markets plunged into what's now the worst five-day crash since the wipe-out of Oct. 1987.


Peaking just above at $930, Gold Bullion also hit fresh all-time highs for British and Eurozone buyers, with the Gold Price in Euros touching €684 an ounce – more than one-third higher from this time last year.

Measured in Pounds Sterling, the Gold Price reached £550 this morning, a rise of 52% from Oct. '07.

"Gold is higher despite the stronger US Dollar, making the current performance even more impressive," says Mitsui, the precious metals dealer in London whose short-term price target remains $955 an ounce "with long-term support coming in at $745.

"There will be significant pressure on the G7 to take further action as their meeting starts today [in Washington]. Recent injections of liquidity, bank bailouts, and interest rate cuts have done little so far to stem the panic."

Looking at the depression-sensitive metals of silver, platinum and palladium, "the rest of the precious metals are taking stock of the global slowdown," Mitsui's note continues.

"A recession will significantly hurt the demand for these industrial metals and as such any rallies are currently being sold into."

Car sales in China fell for the second month running in Sept., new data shows, down almost 8% from July.

Crude oil today sank below $83 per barrel, while soft commodities also fell hard, led by a 5% drop in corn.

The US Dollar continued to rise on the currency markets, squeezing 3¢ out of the British Pound at $1.70 – a near-three year low – and pushing the Euro back towards $1.35.

Tokyo awoke to the bankruptcy of Yamato Life Insurance – the first Japanese casualty of this new "Greater Crash" – putting $2.7 billion of liabilities at risk.

The Nikkei index – the world's second-most heavily capitalized stock market – ended the week more than one-quarter below Monday's start.

Germany's Dax index fell 23% from last week's finish, while the FTSE100 here in London plunged through 4,000.

The UK's blue-chip index sank through the 5,000-mark only ten sessions before.

"Equity yields have got to get to 10% covered twice before this crash finds its floor," reckons Paul Tustain, founder & director of BullionVault .

"But that's a rare thing to find at the best of times, let alone with the threat of price-deflation now looming over corporate earnings."

The price of Gold Bullion first moved sharply higher as Wall Street collapsed into Thursday night's close, approaching the long Columbus Day weekend more than 12% higher from Friday last week as the Dow Jones index stood 17% down.

A fresh 31% collapse in General Motors was blamed on the re-introduction of short selling on the NYSE, as was a 25% drop in Morgan Stanley – now one of only two independent investment banks left in New York.

Morgan's stock lost 39% of its value while the three-week ban was in place.

The Gold Coin Shortage hitting would-be buyers worldwide threatened to tip into the deeper professional market, meantime, after "the cost of borrowing gold surged to its highest level since May 2001 as central banks appear to be hoarding the precious metal," as the CanWest news service in Toronto says today.

Picking up on a story first reported by the Financial Times on Wednesday, "this usually precedes a sharp move in the Gold Price ," adds Steven Isenberg, head of M.Partners, the Toronto investment bank.

"I think the central banks want to hoard what gold they have," says John Ing of Maison Placements research and dealing firm.

For now, however, the world's deep, liquid Gold Market centered in London, England – where physical Gold Bullion turnover is estimated around $60 billion per day – remains unaffected.

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

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