Gold News

10 Years of 4-Figure Gold

Spot gold prices first broke $1000 per ounce 14 March 2008...
 
IN FACT the world's first ever $1000 gold deal had happened the day before, writes Adrian Ash at BullionVault.
 
Thursday 13 March 2008 – a day earlier than the wholesale 'spot' gold price finally popped above $1000 per ounce – saw a customer of BullionVault offer the five ounces of gold he held in secure, insured New York storage at a price of one thousand US Dollars a piece using our live order board.
 
His order was matched by another user, based in Hong Kong, and settled instantly at 07:05 EDT.
 
 
Oh sure, amid the frantic financial headlines of early 2008, retail investors wanting gold coins and small bars had been paying over $1,000 per ounce for some weeks already.
 
But to the very best of our knowledge, no private investor had previously sold gold at that four-figure price tag.
 
The wholesale market tried to follow, with the mid-price of large-bar bids and offers rising within 0.3% of $1000 an ounce later that Thursday...and then coming within 25 cents...as the nearest-dated Comex futures contract tickled it...before physical bullion finally succeeding in climbing above that level the next morning.
 
The PM London Fix that Friday then marked the global benchmark's first-ever four-figure gold price.
 
And while it would take over 18 months for gold's $1000 handle to stick, the world's London benchmark hasn't given a 3-figure price since the morning of Friday, 2 October 2009.
 
Chart of the US Dollar gold price, wholesale spot market mid. Source: BullionVault
 
Forecasts of 5-figure gold on the bug-o-sphere have since become almost as common as forecasts of gold returning to 3 figures from investment bank analysts.
 
Those calls for $10,000 gold have proven as wrong as $900 predictions. At least by today's 10th anniversary  so far.
 
Gold has instead spent the last decade consolidating above $1000 per ounce as the global market digests both record-high mine output and the flood of scrap jewelry unleashed by the financial crisis together with the arrival of China's private households as the No.1 buyers plus the switch to net gold buying – rather than selling – by central banks as a group.
 
"I'm not a speculator," said our $1000 gold pioneer by email to BullionVault ten years ago yesterday, "more of a pessimist who has always held some bullion against the total collapse of the world's financial system."
 
March 2008 sure looked like total collapse had arrived.
 
Day after day oil jumped to new records above $100 per barrel...the Dollar sank to new multi-year lows...world stock markets plunged...and financial debt prices cratered.
 
Central banks poured cash into global money markets, but the fear and loathing just continued to spread.
 
The imminent cause for gold's $1000 price? On that Friday, 14 March, Bear Stearns – original sponsors of the first hedge-fund casualties of the subprime crisis back in May 2007 – started to get emergency support from the Federal Reserve of New York.
 
Such open-ended bail-outs from the Fed had last been made during the Great Depression of the 1930s.
 
So the fifth largest investment bank in the United States was, in short, failing.
 
That failure wasn't stemmed by the Fed's emergency loans however. So that weekend the NY Fed lent $30 billion to J.P.Morgan so it could finance failing assets it bought when it got Bear Stearns for just $2 per share, barely 7% of what the market thought it was worth and around 1 cent in the Dollar compared with Bear's record high of that January.
 
Throwing money at Wall Street, the US central bank also cut Fed interest rates by 0.25% in that 'Sunday special', making the kind of weekend announcement last seen at truly historic moments such as Paul Volcker's double-digit interest rates in October 1979 or the end of the Dollar-led gold standard in August 1971.
 
If the markets were right to rant and sweat back then, perhaps they're right to feel so clean and serene today. Inflation is tame, jobs growth is booming, and central banks are looking to raise rates and cut back QE. As for a crisis in banking, that is so last decade.
 
But also note how, in mid-March 2008, the Fed's action did see gold retreat...back below $1000...as the wider markets took J.P.Morgan's taxpayer-aided rescue of Bear Stearns' clients and creditors as proof that central bankers really did have it all under control once again.
 
That calm proved badly mistaken within a matter of months, with gold finally peaking at $1920 as the US debt downgrade of summer 2011 crashed into the Eurozone debt crisis and the riots across England.
 
Gold tends to do well when other assets do badly. It does best of all when people lose the illusion that central bankers and government have got everything under control. If you put the odds of that happening any time soon at precisely zero, then you probably won't feel much need to own any gold as protection.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are 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. Please review our Terms & Conditions for accessing Gold News.

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