Gold News

Gold drops to 8-day low as hedge fund collapse sparks panic

The spot gold market sank towards the London close on Thursday, ending the day 1% lower.

Trading below $649 per ounce as New York was left to see out the session alone, spot gold prices stood at their lowest level in more than a week.

"Gold is a short," reckons one futures trader speaking to Bloomberg from New Jersey.

"Interest rates are going to be the key driver," he added. Yet Thursday saw short-dated US bond prices rise, pushing down the rate of return offered.

That created a steeper "yield curve" however between short-term and longer-term bond yields – and this classic sign of investor fear was matched by a jump in the cost of credit default swaps, the insurance notes used by big investors to protect against the threat of non-payment on the corporate bonds they own.

The jump in CDS spreads came as Bear Stearns – the biggest underwriter of subprime US mortgage-backed bonds in 2006 – was forced to give Merrill Lynch $800 million of assets lent to its hedge fund division.

Merrills sold the assets to recoup its losses on the deal – and running for cover, Wall Street pulled money out of gold along with equities. (Shouldn't gold act as a "safe haven" instead? Click here for the truth...)

"Cash is king and selling gold is a way of getting money at this point," reckons Marty McNeill, a trader a R.F.Lafferty in New York.

"No one is running to gold," he added – yet BullionVault today recorded net purchases as its customers grew their gold holdings at an 8-day discount.

(Care to join them, or simply want to learn more about how to buy physical gold bullion at ultra-low cost? Click here to claim a free gram of gold now...)

In the gold mining sector, meantime, South Africa's Solidarity trade union suspended the threat of strike action over higher wage claims until July 2, when it will resume talks with management.

"This dispute, which may lead to a strike, has now been suspended until the conclusion of the talks in July," said the general secretary of Solidarity's mining members, Andre van der Merwe.

On the demand side, Kotak Mahindra Mutual Fund today launched its Gold ETF, following fellow Mumbai investment houses UTI MF and Benchmark into offering an exchange-traded gold product.

"Given the fact that India is the largest consumer of gold in the world, launching Kotak Gold ETF will help us meet the prevailing demand through an alternative way," said CEO Sandesh Kirkire.

Indian investors may also want to consider the benefits of owning physical gold bullion outright in their name, however. To learn more about holding investment-grade gold offshore today, be sure to BullionVault now.

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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