Gold jumped to a new 7-month high for US-Dollar investors during Asian and early London trade Tuesday, breaking above $965 an ounce as world stock markets slumped.
Japan's Nikkei dropped almost 4% from Monday's start, while Tokyo Gold Futures added 2.7% for the day, reaching an 18-week high vs. the Yen at ¥2,845 per gram.
Hong Kong shares lost 3.8% after Bank of East Asia (BEA) – a major local bank – reported 2008 profits down by 97.5% and wrote off its entire portfolio of collateralized debt obligations (CDOs).
India's Sensex fell hard for the second day running, testing the 9,000 level – first breached in Sept. 2005 on the way up.
The Indian Rupee fell at its fastest pace vs. the US Dollar in more than 3 months, helping drive the Gold Price in Rupees up to new record highs and "seriously hurting demand," according to Rajesh Mehta, head of India's No.1 jewelry manufacturer and exporter Rajesh Exports.
"The economic slowdown isn't helping [consumer jewelry] demand either."
Tuesday morning saw the US crude-oil price slip back below $37 per barrel, while government bond prices jumped, pushing the 10-year US Treasury yield down to 2.72%.
The US Dollar also rose sharply on the currency market, reaching multi-month highs vs. the Euro and Japanese Yen.
The Gold Fix here in London saw new record highs for UK and European investors Ready to Buy Gold at £674.93 and €761.51 respectively.
Gold also broke new all-time highs vs. the Swiss Franc, the Australian Dollar and the Canadian Loonie.
"Ample room is available before investor positioning approaches the toppish levels recorded last year when gold was travelling to $1,000 an ounce," says Mitsui, the London precious metals dealer, in its latest Gold Investment note.
"Indeed, the net long global exchange book [measuring ETF as well as Gold Future positions] has another 278 tonnes to appreciate before we reach last years record numbers."
Current Gold Prices do not represent a "bubble-type valuation" agrees John Reade, head of metals at UBS in London, in a note to clients.
Guessing at the likely source of that one-fifth increase, "Right now it is the ETF investors who are firmly in the driving seat," says Mitsui, calling the force of Gold ETF demand from large institutions unable to own physical property like Gold Bullion "immense".
The New York-listed SPDR trust fund has added 206 tonnes so far this year, swelling by almost 14% last week alone.
As investment cash flees equities and moves into gold, "We are [also] going to see a reduction in hedge fund assets," believes Timothy Bell, head of hedge-fund advice at UBS Wealth Management, speaking to Reuters in Singapore this morning.
"We are going to see a decline in the number of hedge funds, and we are going to see some strategies not work in this environment."
Globally, hedge fund assets shrank by more than a quarter during 2008, reckons one hedge-fund research group. UBS sees this allocation shrinking another 15% in 2009 to $1.2 trillion.
"We're in a gold uptrend, I am absolutely convinced of that," said Martin Murenbeeld, chief economist of Dundee Wealth Inc., to Martin Creamer for Mining Weekly on Monday.
"But the price rise does not necessarily happen as quickly as investors might hope or want."
Forecasting $1,100 an ounce by year-end – and pegging Gold at an Inflation-Adjusted High of $2,300 sometime "down the road" – investors should find it "perfectly normal to experience one or two years of countertrend," says Murenbeeld.
Looking at the huge stimulus plans now being launched by governments worldwide, "It's reflation that's good for gold," he adds.
US president Barack Obama is due to sign his $787 billion stimulus bill into law later today.
Washington will also release $4 billion in fresh aid to ailing auto-maker and consumer finance group General Motors.
Blaming 2009's "economic winter" on the previous US administration letting Lehman Brothers fail in Sept., Bank of England member Charles Bean said yesterday that the UK's reflationist policies "may improve conditions later this year."
Besides the current record-low of 1% in Bank base rate – as well as the government's cut to value-added sales tax – "a five-point plan [will] ensure an adequate supply of credit to households and business," Bean told an audience in the once-industrial Midlands.
The London government is now under-writing risky bank assets and guaranteeing new bond issues, buying corporate debt directly, asking commercial banks to grow their consumer lending, and targeting increased mortgage loans through the state-owned Northern Rock.
Latest data showed UK inflation rising faster than expected in January, with household goods outweighing lower fuel and mortgage-service costs.
Looking at the growing fears of a major banking crisis in central-east Europe, "A widespread deterioration in the economic health of core markets...may lead to a weakening of the parent bank's ratings" in Western Europe, says ratings-agency Moody's today.
Yesterday Moody's downgraded the UK's Lloyds Banking Group by one notch from triple-A – the bank's rating since 2000 – to Aa1, a grade shared by six other major banks worldwide.
"Like it or not the United States will be forced to nationalize large swathes of its banking system by the fall," says James Saft for Reuters today.
"The tragedy is that we will have to wait that long and that the costs will mount."