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Gold Slips Again as Global Stocks Bounce

Commodities / Gold & Silver 2009 Feb 26, 2009 - 08:47 AM GMT

By: Adrian_Ash

Commodities THE PRICE OF PHYSICAL GOLD slipped further in Asia and London on Thursday, dropping to a two-week low beneath $940 an ounce as world stock markets rose for the second time in 13 sessions.

Euro and Sterling Gold Prices traded some 7% below last week's highs as the US Dollar eased back on the currency markets.

Crude oil jumped again to $43.50 per barrel. Government bond prices fell.

"It may be just medium-term profit taking," says one London currency trader in emailed comments to BullionVault , "but the momentum in gold's clearly backed off since [Fed chairman] Bernanke's comments on reining in inflation over the next couple of years."

On a technical analysis, "The price is still above the 30-day moving average [now at $919], and might act as key support if prices drop further.

"The bottom of the channel upline starting end-Oct. comes in between $880-900."

Wednesday saw the gold assets held in trust by the New York SPDR unchanged for the fourth session running at 1,029 tonnes, confirming what several analysts called "fatigue" amongst large institutional gold buyers.

The world's largest Gold ETF , the "Spider" had previously added gold to the assets backing its shares – intended to track the gold price – on 21 out of 33 trading sessions in 2009.

Private investors have also been acquiring gold in record quantities since New Year's Day, with almost £1 in every £100 of net bank-account withdrawals by UK households last month being transferred to Buy Gold at BullionVault.

Accessing live gold-market prices and buying gold bullion as their own physical property, BullionVault users own almost 14.5 tonnes of large, wholesale market bars in secure New York, London and Zurich vaults.

"The firm, which has a £250 million turnover ($355m) and 12 staff in London, is now the biggest provider of gold bullion to private UK buyers," says a detailed report in The Daily Telegraph .

Over in the retail gold market, meantime, "The rush into bullion coins [continues] creating shortages," says the Financial Times today, "as mints across the world struggle to meet the surge in demand.

"The scarcity is lifting coin premiums to as much as 5% above the [wholesale] spot gold price."

"Demand for small Gold Bars and coins remains firm," agrees the latest Refining Monitor from Mitsui, the London dealers.

"For some refineries, production is fully sold until the end of March, and already 50% has been sold between March and July."

Production at South Africa's Rand Refinery – the world's largest precious-metals processor – is running flat out. Demand for the American Eagle, produced by the US Mint, rose 350% last month from Jan. 2008.

But "amid what is shaping up as a mania," says Jon Nadler – senior analyst at refinery and retail group Kitco in Montreal – many "marketing operations [are looking to] fleece customers and offer them one-ounce bullion coins for ridiculous premia.

"Pay 10% or more," Nadler warns, "and you could face a situation familiar to all too many in the rare coin niche...that Gold Prices may head north, but your coins head the other way in value as supplies improve and premia decline."

On the economic front today, US president Barack Obama will unveil a 2009 budget deficit of $1.75 trillion, sources claim.

Equivalent to 12.3% of the US economy, that funding gap will be wider than any time since World War II.

Obama is also set to announce a $634 billion "healthcare reserve", reports the Financial Times, aimed at financing universal health insurance by raising tax rates on wealthier citizens.

And in the financial sector, struggling Swiss finance giant UBS – which reported a record-busting $17 billion loss for 2008, sacking a further 2,000 staff in mid-Feb. – today "astonished investors" by replacing CEO Marcle Rohner with Oswald Grübel, former head of arch rivals Credit Suisse.

UBS stock rose 11% in morning trade, while Credit Suisse added 7% regardless.

Here in London, Royal Bank of Scotland unveiled the greatest-ever UK corporate loss at £40 billion ($56.8bn).

The shares jumped by more than one-fifth as the FTSE100 index of blue-chip UK stocks added 1.5%.

Already 80%-owned by UK taxpayers, RBS also said it wants to dump £325bn worth of untradable assets into the new tax-funded "Asset Protection Scheme" – also launched today – effectively taking state ownership to 95% of the UK's largest bank.

Current RBS chairman Philip Hampton blamed the record-breaking 2008 losses on "unprecedented turbulence", rather than the ill-timed acquisition of Dutch bank ABN Amro in Dec. 2007.

UK finance minister Alistair Darling meantime called on former RBS chairman Fred "the Shred" Goodwin to renounce his £650,000 a year pension.

After failing to monitor and prevent the City of London's reckless lending and toxic investments of 2002-2008 – now costing UK taxpayers £1.5 trillion ($2.1trn) – official watchdog the Financial Services Authority (FSA) is now due to pay its staff £33 million in annual bonuses.

Today the FSA said "risk and compliance" should form the basis of any finance-sector bonuses.

Yesterday FSA chairman Lord Turner told a parliamentary committee that his organization was not yet "fit for purpose".

By Adrian Ash

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 , 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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