Gold Holds Steady as Stocks Sink, UK Interest Rates Slashed to 57-Year Low; Venezuela Seizes Giant Gold Mine
The price of Gold held steady in London on Thursday, trading just shy of $745 per ounce as world stock markets sank to a one-week low and UK interest rates were slashed to their cheapest level in more than five decades.
"The bears are back in full control after bulls across the globe realized that current economic problems cannot be voted away," says Walter de Wet at Standard Bank.
"The loss in confidence and accompanied fear is weighing heavily on commodities."
Following Wall Street's 5% drop and a 7% loss in most Asian stock markets overnight, the FTSE100 index of blue-chip UK equities sank 200 points to a five-session low.
The Dax index in Frankfurt dropped 230 points to stand 8.5% below this point in Oct.
Crude oil fell back towards $64 per barrel, while copper and zinc futures both lost 5% from the London opening. Government bond prices rose sharply worldwide, pushing the yields paid to investors lower.
"Gold's failure yesterday created a double top in the Dec. Gold Futures contract at the $770 area," notes today's technical note from Mitsui, the precious metals dealer in London.
"The move below $750 has increased the physical off-take [for jewelry, industrial and physical Gold Investment use], and this should support the market in the short term. Look for minor support at the $733 area followed by major support at $720."
On the data front this morning, UK house prices were reported 14.9% lower in Oct. from 12 months before – a record rate of collapse – while car sales fell at their fastest pace in 17 years.
Over in Germany – the world's third largest economy – new factory orders sank 8% in Sept. from Aug. the official data agency said this morning, wildly outpacing analyst forecasts.
Late last month, truck-maker Volvo reported European sales of just 115 units for the third quarter, down from almost 42,000 trucks sold between July and Oct. 2007.
"The risks to inflation have shifted decisively to the downside," said the Bank of England as its slashed UK interest rates by 1.5% this morning – the deepest one-day cut in 24 years.
Now costing just 3.0% per year from the Bank of England, the British Pound is now cheaper to borrow than at any time since the post-war low of 1951. Yet ahead of the European Central Bank's decision due at 12:45 GMT, the British Pound fell only briefly on the forex market, dipping to $1.5750.
That helped the Gold Price in Sterling hold above £466 an ounce. For Eurozone gold investors, the price stuck at €574.
"After the world rally on the day of the US presidential election, investors have now shifted their focus to how fast, and how well the new administration will address the current economic issues," reckons Yoo Soo-Min, an analyst with Hyundai Securities in Seoul, speaking to Reuters.
President-elect Obama is now rumored to be selecting his administrative team, starting with a Treasury secretary to replace the discredited former Goldman Sachs CEO – and key supporter of the $700 billion banking bail-out – Henry Paulson.
Candidates are said to include Timothy Geithner – president of the New York Fed and a regular supporter of low US interest rates – as well as former Treasury Secretary Lawrence Summers (now a Harvard professor) and even arch-inflation-fighter and former Fed chairman Paul Volcker.
Now in its final 60 days, the Bush administration yesterday moved to push through a $25 billion support package for US auto-makers. House of Representatives speaker Nancy Pelosi wants that package increasing to $61bn "with no strings attached."
Today in Tokyo, Japan's Toyota Motor Corp. cut its profit forecast in half, predicting a nine-year low ¥600 billion for the year to end-March vs. a previous forecast of ¥1.6 trillion.
Tokyo stock-brokers had expected to see operating profits of €1.34trn.
Meantime in the Gold Mining sector today, Randgold Resources – the London-listed African gold miner – reported third-quarter output down 12% from April-to-June.
Cash-costs per ounce rose by one-eighth.
Over in Caracas, Venezuela yesterday, the socialist government of Hugo Chavez announced that it's seizing control of the giant Las Cristinas project belonging to Canadian Gold Miner Stock Crystallex.
After seizing control of steel, energy and cement-producing assets deemed to be "strategic", mining minister Rodolfo Sanz told a radio interviewer that the 16-million-ouunce mine "will be recovered and will be operated under state administration."
Crystallex stock – already trading 90% down from this time last year – dropped by almost one-half on the news.