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Gold Recovers on U.S. $1.5trn Financial Aid for Banking Sector

Commodities / Gold & Silver 2009 Feb 10, 2009 - 07:43 AM GMT

By: Adrian_Ash

Commodities THE SPOT PRICE of wholesale gold jumped 1.2% lunchtime Tuesday in London, rising back above $900 an ounce as world equities ticked lower and the European single currency bounced sharply on the forex market.

Crude oil recovered the $41-per-barrel mark. Government bonds rose across the board.


"The metal looks determined to march higher," says precious-metals dealer Mitsui in its latest Gold Investment analysis, "and while...strength in the US Dollar will act to tame rallies, it is difficult to fight this trend.

"However, the near feverish level of market commentary (the level of press space that gold achieved in the weekend papers here in the UK is a good barometer) should temper our bullish outlook to some degree.

"Risk appetite may return to financial markets this week once President Obama's stimulus plan gets the green light. This could act to reverse some of gold's gains."

But once Obama's stimulus begins, Mitsui foresees "a return of inflation pressures, perhaps later this year and certainly in 2010.

"In such a climate gold will benefit."

Tuesday at 11:00 EST will see US Treasury secretary Tim Geithner announce a $500 billion scheme to buy "toxic assets" off commercial banks, according to un-named sources.

Geithner will also extend to $1 trillion a Federal Reserve program making loans directly to non-bank investors, the sources claim.

"My administration inherited a [fiscal] deficit of over $1 trillion," said President Obama at a White House press conference Monday night. "But we also inherited the most profound economic emergency since the Great Depression."

Vowing to push his full $825bn stimulus package through Congress, "Doing little or nothing at all will result in even greater deficits, even greater job loss, even greater loss of income, and even greater loss of confidence.

"Those are deficits that could turn a crisis into a catastrophe, and I refuse to let that happen. As long as I hold this office, I will do whatever it takes to put this economy back on track and put this country back to work."

Over in the US mortgage market – source of the "toxic debts" still destroying bank balance-sheets worldwide – government-seized lenders Fannie Mae and Freddie Mac may require a further $200bn of capital unless home prices start rising soon, says James Lockhart, head of the Federal Housing Finance Agency (FHFA).

Meantime in Moscow, the Kremlin's finance minister denied press reports that he's about to re-structure $400 billion of corporate debts held by Moscow banks.

Here in the UK, banking chiefs being grilled by a parliamentary committee into the Financial Crisis announced they "are profoundly...and unreservedly sorry at the turn of events."

New data in Tokyo said this morning that Japanese consumer confidence held near Dec.'s all-time record low last month.

Over in Switzerland – where interest rates already sit near zero, alongside Japan and the United States – the headline rate of Consumer Price Inflation sank last month to just 0.1% last month from Jan. '08. But stripping out volatile food & energy prices, the cost of living rose nearer 1.0% year-on-year, "indicating that the country was still well clear of harmful deflation," according to Reuters.

Head of the Swiss National Bank (SNB) Phillip Hildebrand has nevertheless hinted at currency-market invention three times in 3 weeks, also promising " Quantitative Easing " to try and boost credit and lending if economic growth does not improve.

Speaking in Switzerland today, "The real economy has not seen the worst yet," claimed Marcel Rohner, chief executive of Swiss wealth-management giant UBS, as he unveiled full-year losses of CHF 19.7 billion ($17bn).

UBS will cut another 2,000 jobs after losing CHF 8.1bn ($7.6bnb) in the last 3 months of 2008 alone.

The Swiss Franc meantime rallied on the currency markets, pushing the Gold Price some 3.7% below last Monday's all-time high of CHF 1,080 per ounce.

The Gold Price in British Pounds also continued to trend lower, ticking back to £607 an ounce – almost 9% beneath last month's top of £662.

Eurozone investors now Ready to Buy Gold saw the price rise further from €683 an ounce – the level hit on Tuesday last week and again yesterday.

And meantime in Beijing, new data from the China Association of Automobile Manufacturers showed monthly vehicle sales in the "communist" state over-taking US car sales for the first time ever last month.

General Motors now expects total vehicle sales in China to hit 10.7 million units in 2009, beating total US sales by almost one million cars.

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 2009

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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