Gold News

Gold Recovers from $19 Drop as Central Banks Scramble to Defend Crisis-Hit Money Markets

Gold Prices gave back an early 1.1% spike to trade at break-even by mid-morning in New York on Tuesday after the US Federal Reserve led a new round of Co-ordinated Central Bank Loans to the world's crisis-hit money markets.

European equities and US stock futures began to move sharply higher even before the Fed's new $200 billion injection of 28-day loans was announced.

The US Dollar also bounced hard as the story broke, climbing back from new record lows vs. the Euro and recovering 2% from a near-12 year low to the Japanese Yen.

Here in London, Gold Prices eventually recovered one-half of their sudden $19 plunge to trade above $973 per ounce as Tuesday's close drew near.

But the European single currency failed to bounce alongside Gold, dropping a full two cents inside four hours to reach a one-week low beneath $1.5285.

That helped push the Gold Price in Euros up to a three-day high above €635 per ounce, even as the Dollar price fell.

The Pound Sterling also dropped two cents, dipping below $2.00 for the first time since Wednesday and taking the Gold Price in British Pounds above £485 per ounce.

Crude oil futures slipped on the G-10 Central Bank Action, losing more than $2 per barrel from a new record above $109, while open-market interest rates fell – and bond yields rose – across Europe and the Americas.

"Since the co-ordinated actions taken in December 2007," said the G-10 Central Banks today, "[we] have continued to work together closely and to consult regularly on liquidity pressures in funding markets.

"Pressures in some of these markets have recently increased again" – and so the US Fed extended overnight loans to 28 days, while the Bank of England extended its current 90-day loan program and widened the range of collateral it will accept from banks needing to borrow money.

The Swiss National Bank once again joined the European Central Bank in agreeing to pump US Dollars into its local money market. The Bank of Japan in Tokyo also acknowledged and approved the action.

But unlike December's central-bank action, today saw the Bank of Canada offer new "liquidity" loans to its domestic banks, suggesting real concern at the recent spurt of hedge-fund failures and major bank rumors.

Only today, the world's largest and perhaps most troubled bank – Citigroup Inc. – was reported to be shoring up six "highly leveraged" bond funds with a $1 billion injection of emergency capital.

The ASTA-MAT municipal bond funds – sold to high-net worth investors – have already received $600 million in aid from Citigroup, their original sponsor, according to the New York Times.

"Banks are [also] hoarding cash because of fears of further hedge fund collapses," said the Financial Times last week after interbank lending rates rose sharply.

The rise in open-market lending rates, sparked by forced asset sales and the collapse of high-profile investment funds, came despite the ongoing central-bank loans agreed in December.

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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.

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