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Gold and Silver Safe-havens in Face of Global Financial Meltdown

Commodities / Gold & Silver Sep 16, 2008 - 07:53 AM GMT

By: Mark_OByrne

Commodities Best Financial Markets Analysis ArticleGold and silver rallied Monday as the crisis on Wall Street worsened with gold up $21.70 to $782 and silver up 28 cents to $11.02. Gold fell slightly in Asian trading but has risen in early European trading to $780/oz.

Gold's resilience is impressive considering the bloodbath seen in the oil pits where oil has fallen another 4% to below $92 per barrel (Light Sweet Crude Oil Future - Combined - OCT08). Other non currency commodities have also fallen sharply.

After the sharp falls on seen Sunday night and Monday morning, currency markets remain volatile as ever but despite the plethora of negative financial news emanating from the U.S., the dollar has consolidated at the same level as yesterday (1.4250 to the euro).

Some continue to incorrectly forecast further falls in the gold price due to the erroneous belief that gold is just another commodity akin to pork bellies and will be subject to demand destruction as the global economy sharply slows. They fail to realize the continuing importance of gold as a global monetary reserve (graphically illustrated by the Bundesbank in their recent statement on gold reserves), as a finite currency and as a safe haven asset as witnessed in the last year.

A little knowledge is a dangerous thing and these commentators have little understanding of gold and the gold market and little understanding of monetary and economic history.

The dollar and other fiat currencies are set to come under significant pressure in the coming months as central banks attempt to stop a 1930's style wholesale liquidation and deflation. This will lead to huge safe haven demand for gold internationally and to higher gold prices as it did in the 1930's when gold was revalued from a fixed price of $22/oz to $35/oz. In 1933 gold was revalued by President Roosevelt from $22 to $35 or by some 60% overnight. Therefore even in a massive deflationary event gold massively outperformed all asset classes and performed it's safe haven role.

Uninformed commentators also do not know the supply demand fundamentals in the gold market. Gold demand remains very robust internationally with demand in the U.S., Europe, Asia and the Middle East continuing to surge (see News section). Meanwhile gold mining companies are struggling with much higher costs and some gold mines are being closed as they are no longer feasible at these low prices.

Gold remains undervalued from a historical and fundamental perspective and markedly higher prices will be seen in the coming years.

Financial Sage Roubini Warns of "Slow-Motion Run On U.S. Retail Banks"
Nouriel Roubini, Chairman of Roubini Global Economics and professor of economics and international business at New York University's Stern School of Business has been the most insightful and perceptive writer on the current financial crisis and one of the very few to predict what is transpiring. He has been a voice in the wilderness ignored by much of the financial press despite accurately warning of the real risks facing the U.S. financial system for many years.

Gold Investments have concurred with his research, made similar warnings and featured Roubini's sagacious work on numerous occasions. (see our Market Update in April 2005 ‘IMF, World Bank, New York Times, FT, Volker & Greenspan Warn of Systemic Threats' - article-2881.htm ).

He is one of the few commentators who really understands the real risks facing the U.S. and global economy and realizes the importance in dealing in financial and economic reality rather than merely “hoping for the best”. We all hope for the best but clearly it is prudent to be prepared for less benign outcomes.

Roubini said yesterday that “it's clear we're one step away from a financial meltdown.”

He said the current problems could even spread to other big investment banks, Morgan Stanley and Goldman Sachs. Americans are justified to be worried who notes there is already a "slow-motion run on retail banks" occurring nationwide. That "run" could accelerate as people realize the FDIC fund has about $50 billion to "insure" about $1 trillion in assets at the nation's financial institutions, says Roubini. "They're going to run out of money" unless Congress acts soon to recapitalize the FDIC.

The usual suspects who have ignored and naysayed the huge macroeconomic and systemic risks in recent months will again warn us not to “shout fire in a crowded theatre”. Unfortunately, they continue to miss the point. There clearly is a fire in the theatre and it is time that people orderly made their way to the exits and take precautions to protect themselves from the fire.

As Mohamed El-Erian of PIMCO Bond Fund has said “in today's highly disrupted financial markets, the unthinkable is thinkable."

Thus investors and savers should be spreading their savings amongst a few institutions and transfer their savings to institutions with higher credit ratings. Also they should diversify a portion of their portfolio into the safe haven asset that is gold. Failure to do this will result in further wealth destruction and significant losses to the uninformed and the sanguine. alt/charts.asp

Gold and Silver
Gold is trading at $778.90/779.50 per ounce (1115 GMT).
Silver is trading at $10.89/10.95 per ounce (1115 GMT).

Platinum is trading at $1094/1114 per ounce (1115 GMT).
Palladium is trading at $223/226 per ounce (1115 GMT).

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ph +353 1 6325010
Fax  +353 1 6619664
Gold and Silver Investments Limited
No. 1 Cornhill
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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