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Gold Bounces from Friday Crash as Governments Nationalise Banks

Commodities / Gold & Silver Oct 13, 2008 - 07:21 AM GMT

By: Adrian_Ash

Commodities Gold Prices gave back an initial 2% rally in Hong Kong and London trade on Monday, standing $10 an ounce higher from Friday's close at $858 as world stock markets bounced almost 6% from last week's record sell-off on news of bank nationalizations and government bail-outs.


Crude oil ticked higher above $80 per barrel, while government bond prices fell, pushing yields higher.

The UK Treasury said it will borrow up to £37 billion ($63bn) from the bond market to buy and control a majority stake in Royal Bank of Scotland, plus a 40% share of the proposed Lloyds TSB-HBOS giant.

"It's perhaps the most extraordinary day in British banking history," said BBC business editor Robert Peston, "an absolute humiliation for the banks."

The British Pound rose 2.7% from last Friday's five-year low on the currency markets, capping the Gold Price in Sterling just above £500 an ounce.

The Gold Price in Euros meantime slipped €2 an ounce to €630, while the French and German stock markets leapt more than 5% on hopes the European Union will also shore up bank balance-sheets with tax-payer cash.

"We will put meat on the skeleton" with specific details promised French finance minister Christine Lagarde after the G7 meeting of leading nations ended on Saturday.

"I am hopeful the US Treasury will [also] announce they're doing it," said Senator Chuck Schumer, head of the Joint Economic Committee, at the weekend.

"They have to do it quickly...markets are waiting."

Today the Federal Reserve has agreed with the European Central Bank (ECB) and Bank of England for them to lend "unlimited" quantities of US Dollars into their local money markets

"Subject to the panic attacks and unstable psychology of world financial markets, gold will continue its roller-coaster ride, exhibiting short-term price volatility," reckons Jeffrey Nichols, head of American Precious Metals Advisors, speaking to Reuters.

Bloomberg's latest survey of professional analysts and bullion traders found 25 out of 33 are bullish for this week, believing that the Gold Price will end Friday above last week's finish at $848 an ounce.

That level was almost 9% down from Friday morning after hedge funds and other speculative traders – desperate to raise cash to cover losses in equities and currency bets – were forced to close leveraged, geared positions in the Gold Futures and options market.

Open interest in US Comex contracts shrank yet again in the weekending Tues 7 Oct., new data said after the market close on Friday.

Down another 2% from the previous Tuesday, open interest in leveraged gold bets – positions that require lines of credit for finance – are now one-third smaller than the record peak of January.

Physical demand for actual Gold Bullion , meantime, continues to surge, with gold dealers from London to Berlin reporting "demand about 10 times what it is at normal times," according to Stephan Henkel, a gold broker at Umicore in Germany.

Sales of Vienna Philharmonic gold coins have gone up by more than 230% since last year.
says production has gone into overdrive.

Across the border in Vienna, "we are running at present something like three shifts on all of the machines, on the presses, producing both gold and the silver bullion coins," says Kerry Tattersall, head of marketing at the Austrian mint, which has seen sales of its Vienna Philharmonic Gold Coins rise by 230% since 2007.

"Given the magnitude of the credit crisis, why scramble after the currency of a country on the brink of recession or worse?" asks Jean Temkin for Business Day in South Africa.

"Would you rather invest in the currency of a country whose financial mishandling has twice plunged the world into economic panic [meaning the United States] or in gold?"

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.

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