Gold News

Gold Rallies to End London 0.7% Higher as Equities Drop on Merrill Lynch's Subprime "Bloodbath"

Gold Prices recovered their early losses on Wednesday to end London trade above $760 per ounce – up 0.7% from Tuesday – as US stocks fell hard on news that Merrill Lynch lost 46% more on subprime mortgage investments between June and Sept. than it originally stated three weeks ago.

"This is a bloodbath for certain," reckons Bill Fitzpatrick, analyst at JohnsonFamily Funds in Wisconsin, speaking to Reuters.

"It speaks very poorly to Merrill's risk management practices. Clearly, heads are going to roll, and I wouldn't be surprised to see meaningful near-term layoffs." (But is this latest subprime "bloodbath" really a surprise? Get the full story here...)

By lunchtime on Wall Street, the S&P index stood more than 1.5% lower. European stocks reversed their earlier gains to finish the day 0.5% down.

British investors wanting to Buy Gold Today saw the price recover £372 per ounce by the finish in London.

Gold Priced in Euros regained last week's 17-month closing high above €535 per ounce.

"Everyone is begging for another half-point cut by the Fed," said one senior broker to Bloomberg after US home sales for Sept. showed an 8% drop from August's sharp fall.

In the futures market, interest-rate prices are now virtually unanimous that the Federal Reserve will cut Dollar rates to 4.5% when it meets next Wednesday, Oct. 31.

But stacked against the hope of cheap money to bail out the US real estate and finance stock markets, crude oil prices snapped a three-day losing streak – rising from below $85 to $86.64 per barrel in New York – after a surprise drop in US stockpiles.

Oil imports sank by 13% last week the Energy Dept. said. Total crude supplies fell by 5.3 million barrels, a 1.7% drop.

Wall Street economists had expected a rise of nearly 1 million barrels.

"This is an exhibit of the tightness we've been talking about," says Rick Mueller, analyst at Energy Security Inc. in Massachusetts. "There just isn't enough oil out there and the situation won't be remedied until Opec opens the taps."

Also supporting today's strong move back into Gold Bullion Investment, a new report from the World Gold Council said that gold jewelry demand in the second quarter of 2007 hit a record value of $14.5 billion – up by more than one third from April-to-June last year.

"The new record was driven by two key factors," the WGC noted. "The economies of a number of gold's key markets, notably India, China and the Middle East were all strong, some very strong.

"The second factor was the substantial easing of price volatility from the first quarter."

Gold Price volatility so far this month has been blamed for a lackluster start to India's traditionally strong festival season, set to peak with the Diwali festival of light in early November.

But the World Gold Council's researchers in New Delhi still believe total imports may rise 17% for 2007 as a whole, hitting a record 840 tonnes for the year as local incomes continue to rise and the economy continues to surge ahead.

"I'm in the process of – I hope in the next few months – getting all of my assets out of US Dollars," announced Jim Rogers, legendary commodities investor and author of the best-selling Adventure Capitalist, at a meeting organized by ABN Amro in Amsterdam on Tuesday night.

China's Renminbi "is the best currency to buy right now," he went on. "I don't see how one can really lose in the next decade or so.

"It's gotta go. It's gotta triple. It's gotta quadruple."

Rogers is also buying agricultural investments after "the number of hectares devoted to wheat farming [globally] has been declining for 30 years and the inventory levels of food are at the lowest level since 1972."

He remains long of precious metals, not least gold, because "the US Dollar has been the world's reserve currency, but that's in the process of changing.

"It's the official policy of the central bank and the US to debase the currency."

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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.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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