Gold News

Gold Dips as Global Asset Deflation Hits Stocks, Bonds & Commodities

Gold Prices slipped almost 4% on Thursday against most major currencies, but held above $886 an ounce while world stock markets, bonds and commodities sank once again as the global asset deflation wore on.

"Gold is thriving in this environment," says a note from Mitsui, the precious metals dealer, in London, but "there may be some position squaring going on ahead of the G7 meeting this weekend.

"Central bank intervention in the financial markets could be far from over."

Leaders from the world's seven largest economies meet Friday evening in Washington, with coordinated anti-deflation action widely expected to follow yesterday's global interest-rate cut.

"Ministers can choose between direct spending or tax cuts, depending on their political hue," says the Financial Times' Lex column. "But either way, fiscal rules, such as Europe's Maastricht criteria, are there to be broken. Now is the time to do so."

European stocks failed on Thursday to hold their first bounce in five sessions. US stocks fell once again after a weak opening rally.

"Gold tends to glimmer brightest under the backdrop of shaky equities," says Darius McDermott, head of Chelsea Financial Services in London, speaking to The Daily Telegraph.

"Time after time, in financial crisis, gold is looked upon as a refuge and safe haven for distressed investors rocked by falling share prices."

The base metals team at UBS in London is set to close, the Swiss banking giant said today, as part of its head-count reductions and following a 30% cut to 2009 price forecasts amid what Lukas Lundin – head of the mining magnate family – calls "the worst [economic] correction we have had in the last 50 years."

Crude oil meantime slipped back below $87 per barrel today, even as Venezuelan president Hugo Chavez demanded an emergency meeting of the Opec cartel to reduce its output quotas.

Government bond prices also fell, pushing yields higher but still pointing to yet further interest-rate cuts from central bankers worldwide.

"We expect interest rates to tumble, especially in Europe," says Steven Barrow for Standard Bank's currency team here in London.

Undermining the very purpose of lower central-bank rates, "lenders should look to lock in current rates," he advises, "and borrowers should delay if possible and certainly avoid fixed-rate borrowing if possible."

New data released today underlined the economic challenges facing the world's politicians – now acting as Major Players in Semi-Nationalized Banks.

"We will use all the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size," said US Treasury secretary Hank Paulson late Wednesday, echoing the half-trillion-pound UK bank bail-out in London.

But on a monthly basis, new US jobless claims last week reached their highest level since Oct. 2001, with continuing claims rising to 3.66 million – almost 2% above analysts' forecasts at a five-year high.

Germany's trade balance meanwhile shrank in August, the official data agency said this morning, down by one-quarter to €10.6bn as export demand sank.

Here in the UK, the trade deficit in goods widened to £8.2 billion ($14.2bn) meanwhile, and the average UK house price fell last month by more than one-eighth from Sept. '07.

The British Pound slid this morning below $1.7230, its lowest level since Jan. 2006. The Euro dropped one cent from this week's high of $1.3770.

For UK investors looking to defend their money, the Gold Price in Sterling bounced 4% below yesterday's new all-time record high of £529.50 an ounce.

The Gold Price in Euros held above €646 per ounce, down from its record high of €670.

"A rush of demand for this precious metal can mean the barrier of US$1,000 per ounce will be broken soon," says Andrzej Sadowski, economist at the Adam Smith Centre in Poland, speaking to the Dziennik newspaper online.

"Gold is a safeguard in turbulent times."

The eighth largest nation in the European Union, Poland has now joined Germany, the UK and North America is seeing a sharp rise in gold investment, the paper goes on.

"We've noted a significant increase of interest in our products," says Artur Niewrz?dowski, a salesman at the W. Kruk jewelers and gold dealers. "The number of pre-transaction queries has tripled."

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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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