Gold's 2008 Gains "a Significant Achievement"; Outlook Strong for 2009
Spot Gold prices slipped in London on Tuesday, retreating 2% from yesterday's early11-week high to trade at $871 an ounce as world stock markets rose and crude oil fell in thin holiday trade.
"By and large, the market is unwilling to trade gold from the short side," notes the latest Gold Futures analysis from Mitsui, the precious metals dealer, in London.
"While scrap selling across traditional hubs placed an obvious ceiling on gold scaling $900, this appears to have dissipated for now."
Indeed, "Gold is set to close the year as one of the very few assets posting a positive 2008 return," Mitsui goes on – "a very significant achievement [that] bodes well for the year ahead."
Looking to Gold in 2009, "as the current deflation reality eventually abates and inflation looms large over the market," says Mitsui, "in such environments gold theoretically should flourish."
Overnight, however, the US Dollar leapt 4¢ against the European single currency, driving it back to $1.3950 and supporting the Gold Price in Euros above €615 an ounce.
That put gold more than 5% higher for French, German and Italian investors from the close of 2007.
Versus the British Pound, the price of Gold continued to hold north of £600 an ounce, more than 37% above its closing level last year.
London's FTSE100 index, in contrast, has dropped one-third of its capitalization. Interest paid to cash-in-the-bank now trails the rate of inflation by the worst margin since 1980.
"The Israel-Hamas tension [has] continued lending support to gold," said Shuji Sugata at Mitsubishi Corp. Futures & Securities in Tokyo to Bloomberg today.
Preparing the outlook for Gold in 2009, "we may see some technical selling and year-end book squaring after the recent gain."
Tocom gold futures closed Tuesday – the last day of 2008 trading – some 16% lower from New Year's Day. The first annual loss in almost a decade came as the Japanese Yen leapt on the forex market, delivering its strongest performance since 1989.
Bruised by this same "risk aversion" – a flight to cash that saw domestic Japanese investors begin to unwind $6 trillion-worth of offshore investments – the Nikkei stock index ended the year more than 42% lower, its worst ever 12-month loss.
On the monetary front, meantime, the US government promised $5 billion to buy equity in GMAC, the struggling auto and mortgage finance company, in one of the last desperate acts of the Bush administration.
The White House also vowed late Monday to extend the tax-funded loans to General Motors by a further $1 billion.
"Technical momentum signals are still warning of further upside potential for the Dollar," reports Manqoba Madinane for Standard Bank in Johannesburg.
"This could see the Dollar endure volatile swings if [today's Consumer Confidence & Case-Shiller Home Price] data comes in worse than expected. This might then create a negative feedback loop, causing further drainage of tactical investment flows from precious metals today – further compromising upside potential."