Holding Gold "In Lieu of Cash" Advised as Banking Stocks Bounce; Physical Bullion Demand Strong
Spot Gold prices dropped $10 per ounce to $845 early in London on Thursday, while world stock markets continued to recover from Tuesday's sharp sell-off.
Gold Bullion held flat for Eurozone buyers, however, as the single currency ticked low against the Dollar.
Government bond prices rose. Crude oil retreated from a one-week high of $45 per barrel.
"Gold has been well supported below $850 (the 200-day moving average)," says a technical note from Mitsui, the international gold dealers, today "but it has not been able to break the resistance at $865."
"The rebound in stock markets may be negative for gold," adds Peter Fertig at Dresdner Kleinwort in Hainburg, Germany speaking to Bloomberg.
"The fear of bank nationalization had been supportive for gold over the past few days."
Here in London today, shares in Royal Bank of Scotland – now almost 70% state-owned – continued to rally from Tuesday's record low of 10.3 pence.
Trading down 98.6% from its stock-market top of two years ago, RBS's financial strength has been downgraded from B to C-minus by ratings-agency Moodys, which fears "significant future losses" at the UK's largest bank.
Daily Telegraph columnist Ambrose Evans-Pritchard notes that the UK government holds foreign currency reserves of less than $61billion, but the foreign liabilities of UK banks – which it has effectively taken onto its books – stand at $4.4 trillion, more than twice the country's annual economic output.
Thursday morning in London trade, the British Pound bounced from its new record low vs. the Yen and 23-year low vs. the Dollar.
The Gold Price in Sterling held above £610 an ounce after reaching new record highs Wednesday at £626.
"The key to where gold heads from here is in concerns about the banking sector," says UBS analyst John Reade in a note to clients, raising his one-month price target from $800 to $900 an ounce.
"Our client flows suggest that the developments in the banking sector have truly spooked investors again," Reade explains, "with strong demand for Gold Coins and small investment bars seen since the start of the week."
MKS Finance in Geneva also confirms strong demand for higher-priced retail gold products, matching the surge in sales witnessed during October and Nov. '08.
Looking ahead for Gold in 2009, RBS Capital in Toronto advises "holding a significant position in the Gold ETF or Gold Bullion in lieu of cash."
Its latest Global Mining Investment Strategy & Outlook Report – quoted by MineWeb – RBC notes that gold has outperformed other asset classes during the majority of previous Fed rate-cutting cycles, especially when matched by a fast-growing money supply and Negative Real Rates of Interest.
Over in Tokyo today, Japanese electronics giant Sony warned of a near-$3 billion loss for the year-to-March '09.
The Bank of Japan meantime held its key interest rate at 0.1%, while forecasting a 1.8% contraction in GDP for full-year '08-09, followed by a 2% contraction next year.
Across the Sea of Japan, Korea's economy shrank by 5.6% in the last 3 months of 2008, the central bank said this morning, with exports collapsing by one-eighth.
China today reported growth of 6.8%, sharply down from end-2007's record 13% rate.
And meantime in Washington, President Obama's $825 billion stimulus plan was said to be making swift progress through House committee reviews.
"Whatever the rights and wrongs of trying to fix the blow-up in credit with fresh money and debt," as MoneyWeek magazine quotes BullionVault, "new spending and debt is just what we'll get...like it or lump it.
"Investors looking to take cover might want to lay in a stock of hard assets by Buying Gold or agricultural land – whatever can't be printed or inflated to zero."