Investors Flock To Gold as Global Banking Crisis Worsens
Commodities / Gold & Silver Jan 14, 2008 - 10:26 AM GMTBy: Adrian_Ash
THE SPOT GOLD MARKET surged into the London opening once again on Monday, starting the week at a new record high of $914 per ounce and hitting record highs against all other major currencies, too.
"The fresh flows of investment into commodities are gaining pace as news on the US economy continues to worsen," says Mitsui, the metals dealer, in a note today.
"Our projection for gold (for there is little other technical analysis to look at) is $975, but with Gold Market volatilities increasing, the possibility of a significant pullback is growing."
US stock futures pointed higher as the Wall Street opening drew near, but the S&P 500 index has now fallen for three weeks running to lose 4.6% from New Year's Eve – "the worst start since 1982," according to Bloomberg.
Citigroup Inc. is rumored to face fresh losses of $24 billion on its mortgage-bond investments, and a report from CNBC also forecasts 24,000 lay-offs when the world's largest bank reports fourth-quarter results on Tuesday.
Today's Financial Times says Merrill Lynch – due to report on Thursday, and widely expected to write-down a further $10-20 billion in mortgage-bond losses – is now looking to raise $4bn in capital funds, with the state-owned Kuwait Investment Authority set to take a "significant" stake.
"The weak Dollar, the simmering pot called Iran, crude oil at $100 per barrel (and likely to rise much higher this year), a deadbeat US presidency, a probable US recession, collapsed credit, diabolical consumer confidence...Little wonder investment money is flocking to gold," says Jessica Cross of the Virtual Metals consultancy at MiningMX.com today.
"But the increase in speculative positions in gold futures – now at a net long of 1,600 tonnes – means a correction, when it happens, could be devastating," she adds. "Some of the big investment banks are already privately advising clients to get ready to sell at a moment's notice."
The "net long" position of speculative traders at the Comex in New York grew by 3% in the week to last Tuesday, says the latest official data, hitting a record 205,404 contracts. On the other side of the trade, however, betting on US interest-rate futures is now unanimous that the Federal Reserve will cut 0.5% off the cost of borrowing Dollars when it meets on Jan. 30th.
This time last week the futures market priced a 50-basis points cut at 66%.
"We can find higher and higher Gold Price targets depending on how gloomy we get on the macro-economic mix and the policy settings that are likely to follow," says Sean Corrigan, chief investment strategist at Diapason Commodities Management in Lucerne , Switzerland .
"On the way up in this latest leg there was good support at $850. Several times we tried to dip back towards it, but gold was immediately bought back, and that's given us the impetus for this round.
"The general trend here is the one we like. You're buying commodities as much for inflation protection as for growth [and] precious metals are the obvious outlet for this. We've got safe haven worries as well, and everything is coming together.
That said, "there is a huge speculative long in this position," says Corrigan, "so you've got to worry about a sudden lurch down before the next move higher."
Asian stock markets fell yet again this morning, closing the day 1.9% lower in Tokyo and losing 1.5% in Hong Kong . Gold futures traded at Japan 's Tocom exchange rose 1.6% to breach ¥3,100 per gram for the first time in 24 years.
On the currency markets the Euro broke through $1.4900 for the first time since last month, when the single currency made life-time record highs just shy of $1.5000. But today's move failed to cap the surging Gold Price in Euros , however, which shot 1.5% higher from its overnight low to hit new highs above €613 per ounce.
For British investors wanting to Buy Gold today, the metal gained more than 1.6% as London opened to reach £465.50 per ounce – nearly £30 higher per ounce from this time last week.
In the commodity markets today crude oil held flat after the Qatari energy minister said the Opec oil cartel – which accounts for more than 40% of the world's daily supply – "cannot control market forces."
"They can't control the geopolitics," said Abdullah al-Attiyah to reporters in Doha . "They can't control the speculation."
Copper prices rose in Shanghai to a two-month high on news that China 's copper imports grew by 8.6% last month from Dec. '06. Zinc and aluminum prices slipped, while soybean futures traded in Dalian , China , jumped to new all-time highs.
The new gold futures contracts being traded at the Shanghai Futures Exchange gained 0.5% for the session to equal $938 per ounce for June delivery.
By Adrian Ash
BullionVault.com
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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2008
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