Gold Surges as Stocks Tumble on U.S. Economic Slump
Commodities / Gold & Silver 2009 Feb 27, 2009 - 08:32 AM GMTBy: Adrian_Ash
THE SPOT-GOLD MARKET regained a third of this week's 6% drop Friday morning in London, trading back above $960 an ounce on a flood of bad economic and financial news.
The US economy shrank by 6.2% annualized at the tail-end of 2008 said the Bureau of Economic Analysis – the worst rate in 25 years – while personal spending fell by 5¢ in the dollar.
Inflation in German consumer prices rose faster than forecast last month, but the Handelsblatt newspaper's "shadow" panel of experts still expects interest rates to be halved to 1.0% when the European Central Bank (ECB) meets next Thursday.
Meantime Citigroup – the Western world's largest bank – could become 36% owned by Washington in return for $25 billion of emergency cash, the Treasury said.
Today Citi recorded a further $9.6 billion write-down to its assets.
"Burnished by bad news, gold looks like a good each-way bet," says The Economist in today's print edition, citing analysis from BullionVault .
"What links today's gold fever with the 1970s rush is negative real deposit rates," the widely-respected journal explains.
"Many savers now prefer a claim on gold in a vault to one on cash in the bank."
Estimating a net loss of 33¢ in every fresh dollar it wants to inject into US commercial banks, the Obama administration yesterday proposed a further $750 billion purchase of their so-called "toxic assets".
Its total budget for fiscal 2009 – spending $3.3 trillion – would require net borrowing of nearly $15,000 per US household.
Here in London on Friday, the Lloyds Banking Group announced a 2008 profit of £815 million ($1.2bn) at its Lloyds-TSB division, but losses of £10.8 billion ($15.2bn) at newly-acquired Halifax/Bank of Scotland.
The bank has so far failed to agree a sale of HBOS's toxic assets to the government's new half-trillion Asset Protection Scheme.
Losing value today for the 11th out of twenty February sessions, the UK's blue-chip FTSE100 index fell 3% to reach a fresh 5-year low.
Crude oil meantime dumped $1.30 per barrel to drop below $44. Government bonds rose sharply, pushing yields lower, as the US Dollar also gained on the currency market.
" Gold ETF buying [had] been flat since Monday," notes Walter de Wet in his gold-market note for Standard Bank today, "adding only 800kg to [trust-fund] gold holdings.
"Scrap metal flooding the market still far outweighs this. However, since last week, scrap inflows have slowed somewhat. The lower Gold Price should encourage EFT buying, while gold scrap flows may continue to fall."
Over in India – the world's hungriest physical market, but where gold jewelry demand fell to 305 tonnes in 2008, according to Virtual Metals' latest Yellow Book – "There are no reports of gold imports so far in February. Zero," said Suresh Hundia, head of the Bombay Bullion Association, to Reuters this morning.
And in Italy – the world's second-largest gold jewelry producer – "I am more worried about the volatility of the Gold Price than the high price of gold," says a leading manufacturer to JewelleryOutlook.com .
"If people feel that the value of gold can drop as suddenly as it rose, they may be less certain about making a purchase."
Virtual Metals forecasts a 5% bounce in Indian gold sales for 2009, and a 2% rise in Italian jewelry production
But with global stock markets and risk appetite turning lower again, "I think the worst for the downside is over," says Gerry Schubert, head of precious metals dealing at Fortis Bank.
"Gold will [only] continue to decline while the performance of equities and other risk assets remains less dreadful than of late," agrees John Reade, the much-followed head of metals analysis in London for Swiss bank UBS, in a note to clients today.
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 2009
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