Gold News

Gold dips at New York open as UBS hit by credit crunch, London's finance debt soars

Gold Prices ticked higher in Europe on Monday morning, adding to Sept.'s 10% gain to record an AM Fix in London of $745.25 per ounce, before pulling back below $743 as the US session drew near.

The US Dollar meantime fell to a fresh record low on the currency markets, while the State of Michigan agreed a new budget to avoid the "government shutdown" due to start today and reversed the temporary layoff of public employees announced Friday.

In Europe, two of the world's largest wealth management groups warned of sharp trading losses due to the global credit crunch of Aug. and Sept.

"We believe the long-term outlook remains bullish" for the Gold Market, says a report from Deutsche Bank. "The threat of the US recession before the year end, additional Fed easing and new lows in the US Dollar provide an excellent macro backdrop for the precious metals complex in our view."

"We believe that the policy resolution to the credit crunch will take the form of a massive, extended 'Reflationary Rescue' in a new cycle of global credit creation and competitive currency devaluations," agree analysts at Citigroup.

"This could take gold to $1,000 an ounce, or higher."

Greg Wilkins, head of Barrick Mining – the world's largest gold producer – told reporters from CNBC late last week that he thinks a rise in the Gold Price to $1,000 per ounce is "possible" due to "growing jewelry demand.

"On the supply side, it's a difficult industry. Lots has been spent on exploration, and there's little to show for it."

Richard O'Brien, CEO of Newmont Mining, also told the Denver Gold Forum last week that "across the world in the [gold] industry...we continue to be challenged by projects that take longer to bring into production."

"I'm quite comfortable talking about $1,200 an ounce," says Ian Cockerill, CEO of Gold Fields in an interview. "I think that will happen in 24 months or so. It could be quicker."

Gold also rose for non-US investors early Monday, pushing the Gold Price in Pounds Sterling above £365 per ounce for British investors before dipping below £364.

French and German investors and savers wanting to Buy Gold Today saw the price break above €525 at the start of London trade, just a few cents shy of last Friday's new 16-month high.

European stock markets meantime recovered an early 0.6% drop to reach break-even by lunchtime, as finance stocks bounced on news of a major restructuring at UBS, the world's largest wealth manager.

UBS had initially dropped more than 3% of its stock-market value after saying today that it will write off $3.42 billion in losses in its fixed-income portfolio, forcing the group's first quarterly loss in nine years. Some 1,500 jobs will go. Marcel Rohner, UBS’s new chief executive, will now take personal charge of the investment banking division.

Credit Suisse also warned that its profits will be "adversely impacted" by losses in fixed-income and credit products, while stock in Northern Rock – the British bank that's now borrowed more than £8 billion ($16bn) in emergency funds from the Bank of England –lost another 15% despite an improvement to the UK's deposit insurance scheme.

The UK government will now underwrite 100% of all cash savings up to £35,000 ($70,000), rather than 90% previously. The Treasury had suggested, however, that it would raise the protection limit to £100,000.

Oil prices slipped back early Monday to $81.40 per barrel, while US Treasury bond prices rose ahead of today's US manufacturing report and Tuesday's pending home sales data. That pushed the 10-year yield one pip lower to 4.58%

The coming week – a "busy one for precious metals," according to Standard Bank in Johannesburg – also brings interest-rate decisions from the Reserve Bank of Australia overnight, followed by the Bank of England and European Central Bank on Thursday.

UK bank lending data today removed one possible objection to a rates-cut at the Bank of England. Mortgage approvals fell 6,000 to 109,000 in Sept. Housing equity withdrawal fell to £10 billion in the second quarter, down from £13.1 billion between Jan. and March.

New borrowing by non-bank financial companies, however, leapt during Sept. to reach a six-month high of 22.7% growth from the same time last year – driven, no doubt, by the Bank of England's new injections of cash to ease the liquidity crunch hitting the City of London.

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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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