Gold Lifted Followng Bradford & Bingley Banking Sector Shockwaves
Commodities / Gold & Silver Jun 03, 2008 - 08:37 AM GMTBy: Mark_OByrne
Gold closed at $893.50 in New York yesterday and was up $6.50 and silver closed at $16.87 and was up 4 cents .
Gold's rise yesterday came despite little or no movement in the dollar and oil price and seems to have been primarily safe haven buying on continuing concerns about the credit crisis.
Gold Rises on Deteriorating Financial Conditions and Safe Haven Demand
In the UK, Bradford & Bingley sent shockwaves through the banking sector yesterday when it took the extraordinary step of renegotiating its £300m rights issue amid concerns it would face a “fight with the underwriters” if it tried to force the offering through on its original terms. The UK's biggest buy-to-let mortgage lender announced a profits warning saying it would make losses of £8m in the first four months because of rising arrears in its mortgage book.
On Wall Street, three of Wall Street's biggest banks were hit with ratings downgrades as S&P downgraded financials. Shares of Lehman Brothers, Merrill Lynch and Morgan Stanley — marquee names in the investment banking world — sank after a major ratings agency, Standard & Poor's, said it had lost some confidence in the banks' ability to meet financial obligations. Lehman shares fell 8.1%, Merrill dropped 3% and Morgan Stanley declined 2.6%. The B&B development was to be expected and it amazing how analysts can feign surprise as to its deteriorating financial condition. Once again, senior executives, management team and board of directors failed to keep shareholders up to speed with the bank's deteriorating trading and much of the media failed to ask any hard questions.
If makes one wonder why anyone in their right mind would trust financial exec u tives on Wall Street and in the City of London when the continue to make so o thing sounds to investors that the worst of the credit crisis is over. Thereby lulling us all into a massive false sense of security and making the event u al denouement even more painful than if we have dealt in financial and economi c reality continuously .
As the markets again realise that we are only in the early stages of the worst financial and economic crisis to face western economies since the 1930's, safe haven demand will again become an important factor driving gold prices much higher in the coming months.
Gold down 4% Last Week but Importantly was Up for May and is Still in a Bull Market
Gold had a difficult week last week and was down nearly 4% after profit taking and technical selling on oil weakness and dollar strength led to a sharp fall in price. It is important to note that gold remained up more than 2.5% for the month of May thereby again outperforming the majority of stock markets. After the falls in March and April, the monthly higher close for gold in May bodes well for gold in the coming weeks and may indicate that the worst of this correction has past.
We are confident that this will be seen as another short term sell off in the enfolding bull market. Bull markets rise on what is termed a 'wall of worry' and this has especially been the case with gold. Gold is a market not understood by the majority of today's market participants due to a lack of knowledge of market. financial and economic history. Less informed participants called a top in the gold price when it reached $500, $700, $850 and over $1,000. All such predictions were extremely premature. Unfortunately many observers and vested interests fail to understand the real and powerful fundamentals driving this gold market.
The primary trends in oil and the dollar remain up and down respectively which should result in gold being well supported above $850 per ounce. While oil may continue to sell off, few expect it to fall much below $100, levels considered extremely high only a few short weeks ago.
Despite a positive May, m ore consolidation in the gold market may be necessary and a weekly close above $900 will be needed prior to the primary trend reasserting itself.
Silver Chart 2003-2008
Oil Retreats, Gasoline Surges
While oil prices fell sharply last week, it is important to remember that gasoline prices have continued to surge.
Gasoline prices continued to hit new heights across the U.S. last week and inflation pressures are beginning to hamper an already embattled U.S. consumer . State-wide, the average price of a gallon of gas rose 11 cents over the week to $3.84 a gallon, while the nationwide average rose 12 cents to $3.95 a gallon.
Retail gas prices hit record highs for the 20th day in a row, motorist group AAA's Web site showed Tuesday. The nationwide average for a gallon of regular unleaded rose to $3.937, up slightly from $3.936 the previous day. The climb in gas prices, which have steadily risen over the past four weeks . G as prices are up more than 10 % from a month ago and nearly 23% higher from year-ago levels. The average price for gas has passed the $4 a gallon mark in 11 states .
Today's Data and Influences
Today, the market may seek direction from a speech by Fed Chairman Bernanke for monetary policy clues to substantiate its interest rate view with the dollar vulnerable to any dovish comments or weak economic data (factory orders and auto sales due today as well as Friday's employment report).
Silver
Silver is trading at $1 6.80 /1 6.8 5 per ounce at 1200 GMT.
PGMs
Platinum is trading at $20 1 5/20 25 per ounce (1200 GMT).
Palladium is trading at $435/440 per ounce (1200 GMT).
By Mark O'Byrne, Executive Director
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