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Precious Metals Surge on Prospects of $1 Trillion US Budget Deficit

Commodities / Gold & Silver Sep 23, 2008 - 07:29 AM GMT

By: Mark_OByrne

Commodities Gold and silver surged  again yesterday (up  5 % and  nearly 8 % respectively) as the  serious inflationary consequences of the Treasury's unprecedented plan to buy up at least $700 billion of toxic assets was realised.  Gold surged from $861.40  to close over $900/oz but has since given up some of its gains, likely on profit taking.


Given the size of gold's move up in recent days (up 15% in less than a week) profit taking would normally be expected however these are unprecedented financial times and thus investors waiting to buy on a dip may be disappointed.  The psychological level of  $1,000/oz  looks likely to be regained in the next few weeks and  it may get there sooner than even the gold bugs expect.

Extreme volatility remains present and looks set to continue on the coming days. Besides sharp declines in stock markets yesterday, there were also sharp moves with the dollar and oil - they fell sharply and rose sharply respectively.

Oil surged $25 yesterday, its largest one day rise ever but mercifully it has given back much of the surge in price overnight. The surge appears to have been due to contract expiry and exacerbated by a massive short squeeze where those short the oil market had to buy back their positions when the oil price rose against them.

Commodities in general (Reuters-Jefferies CRB) also surged and were up 3.9%, after rising some 11% last week. The dollar lost 2% against a basket of major currencies and 2.6% against the euro (above $1,49 again). The dollar is set to come under serious pressure in the coming months as the U.S.' creditors internationally grow increasingly nervous regarding their massive dollar holdings. Even marginal selling by the Chinese, Japanese, OPEC nations and India and Russia could see the dollar falling significantly. There are real concerns of a downgrading of US government debt which could spark a run on the dollar akin to what happened to the British pound on "Black Wednesday" in September 1992.

A run on the dollar is not becoming less unthinkable especially in the light of the massive US trade and current account deficits and the prospect of a $1 trillion ( $1,000 billion) federal deficit next year. Also, we have seen many retail, mortgage and investment banks be taken over, nationalised and go bankrupt and more are soon to follow. And now even "safe haven" assets such as U.S. money market funds are suffering from massive redemptions as investors grow increasingly fretful regarding paper assets, preferring finite, hard and tangible assets such as gold and the precious metals.

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold and Silver Investments Limited
No. 1 Cornhill
London,
EC3V 3ND
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
Email info@www.goldassets.co.uk
Web www.goldassets.co.uk

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 www.financialregulator.ie 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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