Gold News

Gold Jumps, "Burnished by Bad News", as Stocks Tumble on Citigroup Rescue, US Contraction, Huge Washington Debt

Gold Prices recovered one-third of this week's 6% drop by lunchtime Friday in London, trading back above $960 an ounce on a flood of bad economic and financial news.

The US economy shrank by 6.2% annualized at the tail-end of 2008 said the Bureau of Economic Analysis – the worst rate in 25 years – while personal spending fell by 5¢ in the dollar.

Inflation in German consumer prices rose faster than forecast last month, but the Handelsblatt newspaper's "shadow" panel of experts still expects interest rates to be halved to 1.0% when the European Central Bank (ECB) meets next Thursday.

Meantime Citigroup – the Western world's largest bank – could become 36% owned by Washington in return for $25 billion of emergency cash, the Treasury said.

Today Citi recorded a further $9.6 billion write-down to its assets.

"Burnished by bad news, gold looks like a good each-way bet," says The Economist in today's print edition, citing analysis from BullionVault.

"What links today's gold fever with the 1970s rush is negative real deposit rates," the widely-respected journal explains.

"Many savers now prefer a claim on gold in a vault to one on cash in the bank."

Estimating a net loss of 33¢ in every fresh dollar it wants to inject into US commercial banks, the Obama administration yesterday proposed a further $750 billion purchase of their so-called "toxic assets".

Its total budget for fiscal 2009 – spending $3.3 trillion – would require net borrowing of nearly $15,000 per US household.

Here in London on Friday, the Lloyds Banking Group announced a 2008 profit of £815 million ($1.2bn) at its Lloyds-TSB division, but losses of £10.8 billion ($15.2bn) at newly-acquired Halifax/Bank of Scotland.

The bank has so far failed to agree a sale of HBOS's toxic assets to the government's new half-trillion Asset Protection Scheme.

Losing value today for the 11th out of twenty February sessions, the UK's blue-chip FTSE100 index fell 3% to reach a fresh 5-year low.

Crude oil meantime dumped $1.30 per barrel to drop below $44. Government bonds rose sharply, pushing yields lower, as the US Dollar also gained on the currency market.

"Gold ETF buying [had] been flat since Monday," notes Walter de Wet in his gold-market note for Standard Bank today, "adding only 800kg to [trust-fund] gold holdings.

"Scrap metal flooding the market still far outweighs this. However, since last week, scrap inflows have slowed somewhat. The lower Gold Price should encourage EFT buying, while gold scrap flows may continue to fall."

Over in India – the world's hungriest physical market, but where gold jewelry demand fell to 305 tonnes in 2008, according to Virtual Metals' latest Yellow Book – "There are no reports of gold imports so far in February. Zero," said Suresh Hundia, head of the Bombay Bullion Association, to Reuters this morning.

And in Italy – the world's second-largest gold jewelry producer – "I am more worried about the volatility of the Gold Price than the high price of gold," says a leading manufacturer to

"If people feel that the value of gold can drop as suddenly as it rose, they may be less certain about making a purchase."

Virtual Metals forecasts a 5% bounce in Indian gold sales for 2009, and a 2% rise in Italian jewelry production

But with global stock markets and risk appetite turning lower again, "I think the worst for the downside is over," says Gerry Schubert, head of precious metals dealing at Fortis Bank.

"Gold will [only] continue to decline while the performance of equities and other risk assets remains less dreadful than of late," agrees John Reade, the much-followed head of metals analysis in London for Swiss bank UBS, in a note to clients today.

Adrian Ash

Adrian Ash, BullionVault Gold News

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