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Gold Hits Fresh Euro, GDP and CDN Highs on Collapse of Global Confidence

Commodities / Gold & Silver 2009 Feb 18, 2009 - 08:23 AM GMT

By: Adrian_Ash

Commodities

THE US-DOLLAR PRICE of gold retouched yesterday's 7-month high at $974 an ounce early Wednesday before slipping as Wall Street stock futures pointed higher from their 16% plunge of the last 7 weeks.

Priced in Canadian Dollars gold reached a fresh peak at $1,231 an ounce, while the Euro price of gold – up by two-thirds over the last 3 years – hit €767.01 per ounce at the AM Gold Fix here in London, its ninth new record high of the last 15 sessions.


Global stock markets meantime fell for the ninth time in Feb., dragging Germany's Dax index of Frankfurt stocks down 1% to 4,175 – within 60 points of Nov.'s four-year low.

US crude oil ticked back above $35 per barrel. Brent crude traded in Europe rose strongly to $41 per barrel.

Ten-year US Treasury yields fell once again, offering new buyers returns of just 2.60% as prices rose and unwinding half the increase since Dec.'s all-time record lows.

" Gold shouldn't continue to charge upwards," reckons Bernard Sin of Swiss refinery and dealing group MKS Finance.

"We should see a correction or slowdown," he told Bloomberg today. "There's been a lot of safe-haven buying and people have been putting a lot of money into gold rather than anything else."

But for now, "The safety trade continues," says Tobias Levkovich, chief US strategist at Citigroup, to the Financial Times , "and there are very few places to hide."

"There are still many concerns...from the disappointment with [new US Treasury secretary] Tim Geithner's financial-rescue plan to further poor economic data from Japan and Europe to worries about banking-industry exposure to Eastern Europe to concerns about US automakers."

Already taking $17.4 billion in emergency loans from the US government, General Motors and Chrysler yesterday asked for an additional $22bn as they agree wage cuts and closures with the United Auto Workers union.

Launching his $787bn economic stimulus Tuesday, "The size and scale of this plan demand unprecedented efforts to root out waste, inefficiency and unnecessary spending," said President Obama – via a YouTube link – on the new Recovery.gov website.

He is expected to announce today a fresh $50bn initiative to reduce mortgage costs for one-in-three US home buyers. But "Exploding unemployment [and] exploding bankruptcies mean it's going to get much worse," reckons Howard Davidowitz of the eponymous retail consultancy, who now foresees a return of US savings rates to 6% or 7% of annual income – equal to the level when Ronald Reagan ran for president in 1980.

After the minus 6% annual savings rate of 2002-2008, Davidowitz told Tech Ticker yesterday, America's standard of living is going through a "permanent change" thanks to an $8 trillion loss of housing wealth, the $10 trillion loss in capital markets, plus the ongoing $14 trillion consumer debt burden.

"Gold is finally acting as a safe haven asset," notes London precious-metals dealer Mitsui in its latest Refining Monitor , and "The contrast in the various demand forces [for Gold ] could not be more extreme."

Calling Indian gold imports "practically non-existent", Mitsui says "The stark lack of any kind of substantial traditional and jewelry demand – the kind of demand that underpinned this market for many years – is a concern. [But] paralysis in the banking sector and the freezing of credit markets will likely add to the current recession, and this adds weight to increased demand for safe haven assets.

"There is no doubt that the argument for investing in gold in the current financial climate is quite valid."

UK investors now Ready to Buy Gold today saw the price break above £680 an ounce – more than 4.3 times the price when current prime minister Gordon Brown Sold Half the Nation's Reserves in 1999 .

Avoiding any use of the words "deflation", "depression" or " Quantitative Easing ", minutes from the Bank of England's latest policy meeting – when it slashed UK interest rates to a new three-century record of 1.0% – highlight the 'zero-bound' challenge facing zero-rate central banks.

"Where banks passed on cuts in Bank Rate to their borrowers," the committee noted, "that would lead to a fall in banks' profits, which might cause them to restrict their lending further with potentially adverse consequences for the rest of the economy."

Already "The world economy [is] in the throes of a severe and synchronised downturn driven by a collapse in confidence and tightening credit conditions."

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.

Adrian Ash Archive

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