Gold Slips with Stocks, Euro and Oil; Bonds Rise Despite "Gold Friendly" Bail-Out Debt
Gold Prices fell hard into the Wall Street opening on Friday, losing 2% to reach a new two-week low of $824 an ounce as Asian stock markets closed sharply lower.
European shares reversed earlier gains. Crude oil slid back to $94 per barrel.
German Bunds continued to surge, pushing yields sharply lower in anticipation of a cut to Eurozone interest rates as early as November, and US Treasury bonds also pushed higher, sending 3-month yields down to just 0.52%.
The House of Representatives is expected to approve the $700 billion Banking Bail-Out – financed with a fresh flood of Treasury debt, to go with the $10 trillion already outstanding – later today.
"An easing of the financial crisis could see Gold Prices fall back, but the proposed remedies all seem very gold-friendly," as the latest Asian Metals Monthly from Fortis – the troubled Belgian bank – puts it.
Thursday saw Gold Bullion drop almost 11% from Monday's ten-week high of $925 per ounce, as the US Dollar soared on the currency markets thanks to a loss of "vigilance" on inflation from the European Central Bank (ECB).
"Gold was hit hard on the day," says Mitsui's technical note today. "After making a high at the 100-day moving average of $875, the market closed $40 lower.
"$845 was the support level and despite strong physical demand, the technicals now point to a further pull back."
The US Dollar weakened slightly on Friday, allowing the Euro to regain 1¢ of the 11¢ lost over the last seven sessions.
For European investors and savers – now hit by a weakening currency, strong inflation, a slowing economy and the threat of lower interest rates from the ECB – the Gold Price in Euros held above €600 overnight before recovering one-third of yesterday's 2.3% drop at €609 an ounce.
Here in Britain, the major newspapers and broadcast media continued to promote Gold Coins as a "safe haven" investment despite the 10% gap between prices to buy and to sell, and the inconvenience new buyers will face when they want to get out.
BBC television, the Financial Times and The Daily Telegraph all report "savers queuing in the street" at one UK gold dealer, giving its location in London's West End.
Inside, the dealer showed an FT reporter "its last Krugerrand and one of its few remaining [1 kilo] bullion bars.
Outside, the paper reveals, "furtive men clutching hold-alls and rucksacks...rushed on to the Strand, seeking safe havens for their glittering bounty."
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Across the Atlantic on Wall Street, "Assets in SPDR Gold Shares, which had $17.4 billion in its coffers at the end of August, surged last month as some of the nation's most respected financial institutions went up in smoke, were taken over by the government or were gobbled up by rivals," reports the Wall Street Journal.
The world's largest Gold ETF now holds $21 billion in gold, and "instead of buying guard dogs and a security system, you pay 0.4% per year" as one US journalist puts it.
Here at BullionVault, gold investors pay less than one-third that fee – just 0.12% per year – and they actually get to own gold, as well, outright with full legal title and no credit or counterparty risk.
On the data front Friday, US employers cut 159,000 jobs in Sept., the Labor Department announced, the worst drop in five years.
Average earnings rose only 3.4% from a year earlier. Inflation in the cost of living was last pegged above 5.6%.
Home-owners here in the UK meantime paid down £2.8 billion ($5bn) of their "mortgage equity" debt between April and July, the Bank of England said today – the first time mortgage equity withdrawal has turned negative since spring 1998.
Over the following 10 years, UK home-owners mortgaged £8.3 billion ($15bn) of the apparent value in their property, equal to an average 4.1% yearly pay increase that now needs paying back to the banks.
When the UK property market last bubbled and burst in 1992, home-owners paid down their equity withdrawal for six years running.