Gold Prices Touch $975 as "Flight to Safety" Unwinds Stock-Market Bounce, Pushes Investors to Buy Sub-Zero Bond Yields
Spot Gold Prices rose sharply in London on Tuesday, touching a four-session high of $975 per ounce as European stock markets fell hard.
Crude oil held just above $130 per barrel as Tropical Storm Dolly passed by the oil-rich Gulf of Mexico and the US Dollar bounced from a one-week low vs. the Euro and traded at $2.00 to the British Pound.
Government bond prices reversed Monday's drop in a fresh 'flight to safety', pushing the yield on two-year German bunds eight points lower to 4.55%.
"The feel good factor in the equity markets has not lasted long," notes the team at Mitsui, the precious metals dealer, today.
"Better than expected results from Citigroup and Bank of America have been shrugged off, and lower than expected earnings from American Express and Apple have weighed on the market.
"The lid was kept on gold in the early hours of [Tokyo's] Tocom trading, but in thin conditions a five-dollar rally this morning took us through $970 per ounce."
Japanese gold futures today added 1.4% to close at a new 25-year high.
The Gold Price in Euros broke above €612 per ounce, almost 2% above Friday's one-week low.
Here in London the FTSE100 index of blue-chip shares meantime dropped more than 2% by lunchtime, undoing the last two sessions' rally as mobile-phone giant Vodafone sank 15% on a poor trading update.
Revenues will come in "around the bottom" of its previously stated range, Vodafone said.
For British investors seeking shelter in Gold, the Sterling price undid all of last week's 1.5% drop to trade above £486 per ounce.
Further north, today's Financial Times notes a fresh jump to near-record levels in the risk of default by Iceland's major banks, Glitnir and Kaupthing.
Now trading above 10%, the cost of insuring their bonds – used in part to help finance large private-equity buy-outs of European equities by Icelandic groups between 2003 and 2007 – has doubled in the last month.
"There's an expectation that more bad news will follow as the regional [US] banks report over the coming days," reckons Gary Thomson at London brokerage CMC Markets, after American Express – the world's largest credit card group – said overnight that its earnings between April and July fell 37% compared with 2007 amid "much weaker" than expected business conditions.
Shares in Apple Computers – the third-largest PC manufacturer in the US – lost 10% in after-hours trade following news that it will start slashing prices to remain competitive.
This morning Wachovia, the fourth largest bank in the US, said it lost $8.86 billion in the second quarter, equivalent to $4.20 per share.
Analysts had forecast a loss of 78 cents.
"It's all about Dollar weakness and risk aversion," said Sagiv Peretz, a dealer at Finotec UK, to Bloomberg.
"We see some shifting from equities back into commodities, especially Gold."
Tuesday brings the latest US house-price data, expected to show sales of new homes falling below 500,000 last month, the worst turnover since 1981.
The flight to safety – out of stocks – pushed the yield on ten-year US Treasury back down to 4.02% this morning, almost a full percentage point below the latest reading of US consumer price inflation.
The US Treasury will auction some $58 billion in new government debt this week. Only $6bn of those bonds will be Inflation Protected Securities (TIPS).
Meantime in the 15-nation Eurozone, the cost of buying credit default swaps (CDS) to insure government debt issued by economic laggards Italy, Ireland, Spain and Greece has also jumped as they face surging inflation, low interest rates, and a marked slowdown in growth.
"For a long time the economic environment was benign," says Thomas Mayer, head economist at Deutsche Bank, "but the party has now come to an end for the Eurozone and particularly the peripheral economies, such as Italy and Greece."
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