Gold News

Gold Surges on New US Banking Woes, Falling Interest Rates; "Little Wonder" Investors Flocking to Gold

Spot Gold Prices surged into the London opening on Monday, starting the week at a new record high of $914 per ounce and hitting record highs against all other major currencies, too.

"The fresh flows of investment into commodities are gaining pace," says today's note from Mitsui, "as news on the US economy continues to worsen.

"Our projection for gold (for there is little other technical analysis to look at) is $975, but with Gold Market volatilities increasing, the possibility of a significant pullback is growing."

Citigroup Inc. was rumored Sunday to face fresh losses of $24 billion on its mortgage-bond investments. A report from CNBC also forecasts 24,000 lay-offs when the world's largest bank reports fourth-quarter results on Tuesday.

Today's Financial Times says Merrill Lynch – due to report on Thursday, and widely expected to write-down a further $10-20 billion in mortgage-bond losses – is now looking to raise $4bn in capital funds, with the state-owned Kuwait Investment Authority set to take a "significant" stake.

US stock futures pointed higher as the Wall Street opening drew near, but the S&P 500 index has now fallen for three weeks running to lose 4.6% from New Year's Eve – "the worst start since 1982," according to Bloomberg.

"The weak Dollar, the simmering pot called Iran, crude oil at $100 per barrel (and likely to rise much higher this year), a deadbeat US presidency, a probable US recession, collapsed credit, diabolical consumer confidence...Little wonder investment money is flocking to gold," says Jessica Cross of the Virtual Metals consultancy at MiningMX.com today.

"But the increase in speculative positions in gold futures – now at a net long of 1,600 tonnes – means a correction, when it happens, could be devastating," she warns. "Some of the big investment banks are already privately advising clients to get ready to sell at a moment’s notice."

The "net long" position of speculative traders on the Comex in New York grew by 3% in the week-ending last Tuesday to hit a record 205,404 contracts. On the other side of the trade, betting on US interest-rate futures now puts the odds of a sharp 0.5% cut when the Federal Reserve meets on Jan. 30th funds at fully 100%, rising from a 66% chance at the start of last week.

(What does gold care about US interest rates? To learn What's Really Driving this Bull Market in Gold, click through and register for this Free Gold Report now...)

"We can find higher and higher Gold Price targets depending on how gloomy we get on the macro-economic mix and the policy settings that are likely to follow," says Sean Corrigan, chief investment strategist at Diapason Commodities Management in Lucerne, Switzerland.

"On the way up in this latest leg there was good support at $850. Several times we tried to dip back towards it, but gold was immediately bought back, and that's given us the impetus for this round.

"The general trend here is the one we like. You're buying commodities as much for inflation protection as for growth [and] precious metals are the obvious outlet for this. We've got safe haven worries as well, and everything is coming together.

That said, "there is a huge speculative long in this position," says Corrigan, "so you've got to worry about a sudden lurch down before the next move higher."

Asian stock markets fell yet again this morning, closing the day 1.9% lower in Tokyo and losing 1.5% in Hong Kong. Gold futures traded at Japan's Tocom exchange rose 1.6% to breach ¥3,100 per gram for the first time in 24 years.

On the currency markets the Euro broke through $1.4900 for the first time since last month, when the single currency made life-time record highs just shy of $1.5000. But today's move failed to cap the surging Gold Price in Euros, however, which shot 1.5% higher from its overnight low to hit new highs above €613 per ounce.

For British investors wanting to Buy Gold today, the metal gained more than 1.6% as London opened to reach £465.50 per ounce – nearly £30 higher per ounce from this time last week.

In the commodity markets today crude oil held flat after the Qatari energy minister said the Opec oil cartel – which accounts for more than 40% of the world's daily supply – "cannot control market forces."

"They can't control the geopolitics," said Abdullah al-Attiyah to reporters in Doha. "They can't control the speculation."

Copper prices rose in Shanghai to a two-month high on news that China's copper imports grew by 8.6% last month from Dec. '06. Zinc and aluminum prices slipped, while soybean futures traded in Dalian, China, jumped to new all-time highs.

The new gold futures contracts being traded at the Shanghai Futures Exchange gained 0.5% for the session to equal $938 per ounce for June delivery.

Looking to buy real, physical gold...rather than a derivative promise or complex trust arrangement? For direct access to live Gold Market prices – starting with a gram of free gold stored securely on your behalf in Zurich, Switzerland today – click through and open your no-obligation account at BullionVault here...

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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals