Gold Retreats on Dollar, Yen Surge; "Cascading Crises" Loom as Governments Prepare $2.5 trillion of Debt
The price of Gold fell sharply in Asia and London on Monday, dropping 3.2% from Friday's best weekly close in eight and falling below $791 an ounce.
The six-day rally in global stock markets also stalled on a fresh surge in the US Dollar and Japanese Yen.
Government bond prices jumped on expectations of sharp cuts to Sterling and Euro interest rates later this week.
Warning that domestic credit is as tight now as during the worst of Japan's mid-90s' credit crunch, the Bank of Japan announced an emergency policy meeting for Tuesday.
"A cascading series of crises [could] fall upon us," said United Nations' secretary-general Ban Ki-Moon at a meeting in Doha, Qatar, this weekend, "each building on the last, with devastating social and political consequences for us all."
The UN now forecasts global economic growth of just 1% in 2009 – a "sub-par recession" marking the worst outlook since 1981.
"Virtually all" that growth will come from emerging and developing nations, Ki Moon said.
The ongoing stand-off between Thai police and anti-government protesters at Bangkok airport – now in its seventh day – stemmed earlier profit-taking in Gold sparked by a run of higher Baht prices, a dealer in Singapore told Reuters earlier.
"The Indonesians are also very active since the Rupiah dropped to 12,000 from 11,000 against the US Dollar," he added.
Gold Investment demand in Mumbai, India was "badly hit" by last week's terror attacks, reports Commodity Online, with the Bombay Bullion Association (BBA) reporting lost business worth up to $238 million equivalent.
On the international wholesale Gold Bullion market today, "December picked up where November ended as far as the metals are concerned," says the gold desk at Mitsui Bussan in Hong Kong.
"A good close in New York last Friday could not attract fresh buying [in Asia]. Sellers were probably those who bought before the weekend."
On the forex market this morning, the British Pound lost more than 3.5¢ to $1.50, capping the fall in gold for Sterling buyers at £527 an ounce.
Versus the Japanese Yen, the Euro lost 2.3% to reach a one-week low near ¥118, while the Dax index of German stocks lost 3.5% to trade just above 4,500.
The Gold Price in Euros fell €21 per ounce to €624.
"Gold has come sharply lower this morning, breaking last week's consolidation pattern," says today's Gold Market from Mitsui here in London, and "the US Dollar is strengthening as possible rate cuts outside of the United States dominate headlines.
"European and Chinese factory activity has sunk to a record low. Europe, Australia and Britain are all expected to come out with further sharp rate cuts this week in an attempt to resuscitate demand."
The Baltic Dry index, which measures the cost of shipping non-perishable solids, fell for the sixth month running in November, ending last week almost 95% below its record peak of late May at a 22-year low.
Today crude oil and the broader commodities complex fell sharply once more, pulling the Goldman Sachs Commodity Index (GSCI) almost 2.9% lower.
Mid-term government bonds jumped, meantime – pushing the yield offered to new buyers of 5-year bunds and gilts more than 0.12% lower – despite a UBS forecast that developed-world governments will issue $2.5 trillion in new bonds next year.
"Governments are already running into problems," says Roger Brown, head of global interest-rate research at the Swiss investment giant. "We do have to ask whether there will be enough investors to buy the bonds, or at the very least over whether this will push yields substantially higher to attract them."
Gold Mining output, in contrast, continues to shrink, with South Africa – the former world No.1 – reporting a 16.2% decline in third-quarter production from the same period last year.
Besides the energy supply problems which shut the entire South African mining industry in January, the Chamber of Commerce blames "downsizing in the gold mining industry and the significant impact of safety-related closures."
The average ore grade of South Africa's gold output – the density of gold particles per tonne of rock mined – fell by 3.7% between July and Oct.
Over in Reno, Nevada today, the world's largest gold miner company, Barrick Mining, will face a legal challenge from environmental and American Indian groups lobbying against its Cortex project in the Crescent Valley.
The project had been forecast to produce one million ounces of gold per year.
Here in London today, AIM-listed coal, gold and antimony group Cambrian Mining said it would cut overall production in a bid to reduce costs.
"Many gold mining groups around the world fritter away their margins on trying to find new sources of supply, wasting the money on exploration and expensive corporate activity," said fund manager Evy Hambro in Melbourne, Australia last week at the annual general meeting of his listed vehicle Global Mining Investments (GMI).
"I think shareholders want to see some of this margin coming back to them in the form of dividends, paying off debt and retained earnings. I think that is what people are really looking for to get Gold shares really moving again."