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Gold Trades in Tight Range as Bonds Offer Record Low Returns for Investors

Commodities / Gold & Silver Nov 19, 2008 - 10:15 AM GMT

By: Adrian_Ash

Commodities WHOLESALE GOLD BULLION PRICES inside a tight range vs. the world's major currencies early Wednesday, as world stock markets fell for the eighth session in 13 so far this month.

The Gold Price in Japanese Yen held unchanged from the start of Nov., while the Tokyo Nikkei index slipped to its worst level since the quarter-century lows of late Oct.


Crude oil fell back below $55 per barrel. The Euro held above $1.26 to the Dollar.

"Something strange occurred in the currency markets yesterday," notes Steven Barrow at Standard Bank in London: "Nothing moved.

"A range of just over one big figure on Euro/Dollar [from $1.25 to $1.26] is the smallest that we have seen since Lehman collapsed in September. Could this be a sign of things to come?"

Stability if not a return of the Dollar's six-year bear market ending in July "might be one of the few factors that could give other assets – like stocks – a half decent end to the year," Barrow believes.

Latest official data today showed US consumer prices dropping 1.0% between Sept. and October. But stripping out volatile food & energy costs – the measure preferred by policy-makers during the three-decade record surge in inflation to this fall – prices ticked only 0.1% lower, leaving real Dollar interest rates 2.7% below zero.

Government bond prices rose yet again, however – pushing yields lower still – as the day's economic headlines pointed to an acceleration in the global slump.

Following a riot by thousands of people in Gansu, China – plus strikes by taxi drivers and laborers across the country – Beijing's public security minister, Meng Jianzhu, told the China Daily that "police should be fully aware of the challenge brought by the global financial crisis and try their best to maintain social stability."

Risk consultancy IMA Asia today raised its political-risk rating on the world's fourth-largest economy from low to medium.

Tokyo's third-largest bank, Sumitomo Mitsui, meantime announced a cash-raising worth $2.9 billion to try and shore up its capital base.

Australia reported a 10% year-on-year drop in new car sales for October, while platinum-miner Lonmin warned the plunge in auto-catalyst demand will make conditions "challenging" for the next 18 months.

The world's third-largest platinum miner, Lonmin now plans to cut its London headcount by one third, closing high-cost mines and slashing expenditure in a bid to weather the storm.

Over in Europe, loans backed by commercial real estate were downgraded by Moody's, the credit ratings agency, after 15 of the 660 bonds it tracks went into default during the June-to-Oct. quarter.

Here in London, Alistair Darling – reportedly a supporter of the International Marxist Group as a student, the British section of the Trotskyist Fourth International – said the UK government's £37 billion ($56bn) banking bail-out "will carry terms and conditions...in relation to lending policy and wider public policy issues."

Dividend payments and executive pay will also be subject to government control, he added in an official statement.

With the Pound Sterling now down by one-fifth on the currency markets since this time last year, minutes from the Bank of England's latest policy meeting today showed the nine-member committee was unanimous in slashing base rate by 150 basis points.

The annual returns offered to new buyers of two-year UK gilts slipped back towards Tuesday's record low beneath 2.0% on the news.

"We live in pretty difficult times and that's being reflected in the world of gold," said George Milling-Stanley of marketing-group the World Gold Council (WGC) to Bloomberg News today.

"More and more investors are seeing the long-term strategic benefits gold can have."

Commenting on the global meltdown in a speech to Lombard Street Research this week, "what this crisis reveals is a broken financial system like no other in my lifetime," said former US Fed chairman Paul Volcker .

"Normal monetary policy is not able to get money flowing. The trouble is that, even with all this [government] protection, the market is not moving again.

"The only other time we have seen the US economy drop as suddenly as this was when the Carter administration imposed credit controls, which was artificial."

The 1977-1981 presidency of Jimmy Carter saw the last bull market in gold reach its peak, rising four-fold for US Dollar investors and also trebling and more for British, European, Canadian and Australian buyers.

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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