Gold News

Gold Investment Beats Stocks 5 Years After Lehmans, But Price Sinks as "Even Worse Risks" Fail to Spur "Safe-Haven Buying"

GOLD INVESTMENT prices marked the 5th anniversary of Lehman Brothers' collapse by sliding $25 per ounce Friday morning, finally bouncing from a new 5-week low at $1305.
 
World stock markets held flat, while the price of crude oil rallied from a 3-week low.
 
Silver regained 40c per ounce from a fresh 4-week low at $21.42 – some 10% below where it ended last week.
 
Investment gold has now lost 6.2% so far in September.
 
"Five years on [from Lehmans' collapse] global finance is a long way from safe," says a lead editorial in this week's Economist magazine.
 
"The system is just as insane – perhaps more so," says the Financial Times' US editor, Gillian Tett. Because "the big banks are bigger, shadow banking is taking over more activity, not less [and stability] depends more than ever on investor faith in central banks."
 
Since Lehmans collapsed, notes Tett's FT colleague James Mackintosh, US stocks have averaged 7.8% real returns per year allowing for dividends and inflation.
 
More than one percentage point above the US stock market's very long-term average, that return is "identical to the return in the five years up to June 2007, the month before the credit crunch hit," says the FT.
 
Physical gold investment – net of all transaction and storage costs, as well as inflation – has returned 9.8% per year since the Lehmans collapse for US citizens buying, owning and selling today on BullionVault.
 
"For next year, a move to $1000 is on the cards," reckons investment bank UBS commodities research chief in Singapore Dominic Schnider.
 
"Once a timetable of tapering is known, then you probably will see a fresh selling wave of the exchange-traded fund side."
 
Gold investment bars held to back ETF shares in the giant SPDR Gold Trust were unchanged Thursday at 917 tonnes – nearly 50% greater by weight from September 2008, but one-third down from the peak holdings of December last year.
 
"We expect reduced tail risks and QE tapering expectations to continue to weigh on the gold market," said investment and bullion bank HSBC in a note Thursday.
 
"Gold's failure at the 1415/24 barrier," says a technical analysis from fellow London market-makers Credit Suisse, "leaves us still bearish.
 
"Key downside levels are at 1277...beneath which triggers a move to [end-June's] 1180 low."
 
Japan's Nikkei Shimbun meantime reported that Larry Summers will become the next chairman of the US Federal Reserve, quoting unnamed "sources".
 
Appointing the former Treasury secretary and Harvard professor would be opposed however, a leading Republican warned Thursday, because of his "history of promoting stimulus funding and higher taxes."
 
"Conservatives [will also] exploit looming fiscal deadlines," says a Reuters report, "to derail President Barack Obama's signature healthcare reform law."
 
Agreement to raise the so-called "debt ceiling" - now set at $16.7 trillion - must be reached by September 30 if Washington is to avoid what the newswire calls "an historic default on its debt that would create havoc in global financial markets."
 
"Uncertainties surrounding US fiscal issues...have in the past been typically positive for gold," says UBS's precious metals team in London.
 
"Geopolitical issues, Eurozone and US debt/budget debates," agree analysts at Asian investment bank Nomura, "could...help gold through the traditionally seasonally strong Q3."
 
India's legal gold imports – now curbed by 10% duties and strict central-bank rules – will likely fall 30% this year to $38 billion by value, economic adviser to the prime minister C.Rangarajan said today.
 
With investment gold trading 13% below August's record highs today in Rupee terms, "Some buyers are still on the sidelines expecting a further drop in prices," Reuters quotes a Mumbai dealer.
 
"Indian gold demand will recover in the months ahead," says commodities analysis from Standard Chartered Bank, "especially given expectations of rising farmers' incomes, after a bumper monsoon season."
 
But while StanChart expects Asian demand "to remain robust...we do not see much upside" for gold prices. 
 
"The global economic recovery is strengthening, which will deter safe-haven buying."

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.

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