Gold News

Gold Breaks $900 as Western Stocks Surge on Bond-Insurance Plan; Asian Governments Move to Buy Equities

Gold Prices rose 0.8% to break above $900 per ounce early in London on Thursday, while European stock markets posted their biggest one-day gains since the Tech Stock Crash bottomed in March 2003.

The surge came despite news that Societe Generale – France's second-largest bank – has lost €4.9 billion ($7.1bn) thanks to a lone equities trader applying the "double or quits" strategy of Nick Leeson at Barings and Yasuo Hamanaka at Sumitomo Corp.

Announcing the world's biggest ever "rogue trader" losses, SocGen also admitted to a further €2.05 billion writedown of its credit-related investments.

"The situation of financial institutions is likely to improve," reckon analysts at Dresdner Kleinwort in a report today, "and this might stabilize stock markets, which would be positive for gold."

"It would not only be positive for Gold Prices as investors stop selling gold to cover losses on other assets, but also via a weaker US Dollar and rebounding crude oil prices."

The world's commodities markets certainly rallied this morning, with crude oil bouncing from a three-month low and copper traded at the London Metal Exchange rising at the fastest pace in a fortnight.

Corn, wheat and soybean prices also rose.

But Asian stock markets suffered a very mixed session, with Hong Kong selling off a further 2% while Tokyo bounced by the same proportion as the Japanese government debated a package of emergency support that would scrap both capital gains and dividend taxes.

Today's Financial Times reports that state-controlled pension funds in China, Taiwan and South Korea are now planning to raise their equity investments in a bid to support stock prices.

This morning in the United States, Ford Motor Co. said it lost $2.7 billion in the last three months of '07, taking its total losses for the year to $2.8bn.

"There should be a lot of [gold futures] traders hoping to cover their shorts at a better price today," says Christopher Langguth in Mitsui's technical note, but "on the upside [above] $897 the buying will probably be aggressive.

"Very few shorts will be willing to wait and see if it takes out $916.10 before covering."

At the Tocom in Tokyo, gold for delivery in Dec. '08 ticked ¥5 lower, slipping to ¥3,066 per gram – equivalent to $894 per ounce – as the Japanese Yen pulled back from last night's 30-month highs on the currency markets.

Both the Euro and British Pound then touched one-week highs vs. the Dollar above $1.4680 and $1.9640 respectively. But the recovery in Gold Prices outpaced them all, hitting seven-session highs for British investors above £459.90 per ounce.

The Gold Price in Euros hit new all-time record highs above €615 per ounce.

Further east meantime, "the research center at BDO Unicon auditing and financial services found that metals accounts were the most profitable savings instrument for the public in 2007," reports Kommersant in Moscow today, "providing a real income in Russian Rubles of 13.7%."

The Gold Price today gained more than 3.5% from Tuesday's low against the Ruble. (If Russians are Making an Income from Gold, why aren't you? Read on here...)

Over in the debt markets, the cost of financial insurance slipped across Asia and Europe, with the price of credit default swaps (CDS) on higher risk European debt dropping by 7%. The cost of Japanese CDS fell by one-tenth on the Markit Index.

And extending yesterday's late surge on Wall Street, the FTSE Eurofirst index of 300 blue-chips rose by 4.9% this morning as further details emerged of the New York State insurance regulator's demand that US banks support the ailing "monoline" credit insurers with a $15 billion package.

The monoline insurers now stand behind $2.4 trillion in corporate, credit and municipal bonds. Last Friday the world's second-largest bond insurer – Ambac Financial – had its own credit rating downgraded from the crucial "triple-A" status it requires to raise fresh funds.

"Investors will continue to buy precious metals like gold, silver, and platinum to offset paper losses in other markets," says Roland Jansen, head of investment at Juno Mother Earth, a $150 million US asset manager.

"Inflation will increase worldwide and is much higher than the official published statistics of governments."

Lower interest rates from the Federal Reserve – and now widely expected from the Bank of England and ECB, too – will only accelerate the loss of purchasing power in official currencies worldwide.

Monetizing banking debts through schemes such as the UK government's forthcoming Northern Rock gilts issue is then likely to accelerate inflation further.

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Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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