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Gold Rallies Sharply on Deepening Credit Crisis

Commodities / Gold & Silver Mar 26, 2008 - 10:38 AM GMT

By: Mark_OByrne

Commodities Gold was up $16.50 to $934.80 per ounce in trading in New York yesterday while silver was up 70 cents to $17.70 per ounce (see more on silver shortages below) . Gold has rallied in Asian trading and again in trading in London this morning. The London AM Gold Fix at 1030 GMT this morning was at $945.75 £473.68 and €602.01 (from $930.65, £467.24 and €598.57 yesterday).

With the credit crisis deepening, the dollar again showing weakness and oil prices well bid in the low $100's, gold is showing strength again this morning.

The economic data yesterday was dismal with house prices falling in January to a record low (down a significant 10.7% from January 2007). Not surprisingly falling house prices and the reversal of the “wealth effect” helped contribute to March's consumer confidence plummeting to lowest levels since the stagflation of the early 1970's. Record gasoline prices and growing inflation will not have helped the mood of the U.S. consumer. Of importance was the fact that the expectations component of the index fell to a new low, the lowest since 1974, and this must raise alarm bells regarding the health of the U.S. consumer – the primary driver of the U.S. economy.

More US housing market data in the form of new home sales and durable goods orders are due today and further poor data will likely lead to safe haven demand for, and investors continuing to diversify into, gold.
26-Mar-08 Last 1 Month YTD 1 Year 5 Year
Gold $     
S&P 500      
© 2008

Further evidence that the credit crisis is not abating and is indeed worsening is evident by the fact that banks are continuing to hoard cash and borrowing costs between institutions continues to rise. Britain's interbank borrowing market has begun to seize up again. Three-month LIBOR rates rose yesterday for the 11th session in a row to 5.995 percent. 

Unfortunately, despite the increasingly futile efforts of central banks and the Federal Reserve to ease the financial crisis it continues to deteriorate. It seems increasingly likely that the credit crisis may soon degenerate into a solvency crisis and the very solvency of the U.S. financial system is at stake. The worry is that the shadow banking system with its $516 Trillion of exotic and untested derivatives or “Buffett's financial weapons of mass destruction” may lead to what is being called a ‘Derivatives Chernobyl' as outlined by Ambrose Evans Pritchard in the Telegraph ( /money/main.jhtml?xml=/money /2008/03/23/ccfed123.xml )

The toxic mix of stagflation and a growing solvency and systemic crisis means that risk aversion should remain paramount for investors. Gold and silver should be a cornerstone of all portfolios in the current unprecedented macroeconomic climate. Cash is not a safe haven is an economic environment threatened by systemic risk and significant inflationary risk.

Support and Resistance
Gold's support is now between $900 and $906 and below that strong support is at previous resistance at the 1980 record nominal high of $860. Resistance is at the recent new record nominal high of $1030.80 and $1000. Gold Investments continue to see gold reaching at least $1,200 per ounce in 2008.


Silver is trading at $18.00/18.05 at 1200GMT.
Gold Investments continue to see silver reaching $25 per ounce in 2008 especially in the light of the incredibly and unprecedented supply demand imbalance in silver.

All the above ground refined silver in the world is only worth at today's prices roughly a miniscule $9 billion (500 million ounces X $18).

Roughly what the Federal Reserve is printing on a daily basis in order to rescue the world's financial system. Any one of hundreds of billionaires, hedge funds or sovereign wealth funds could decide to take a significant position in silver or even corner the silver market as the Hunt brothers did in 1979-1980. Such an action which appears increasingly likely would result in a surge in the price of silver that would make that seen in the 1970's very tame in comparison.  This would especially be the case if those cornering the silver market did not make the same mistake as the Hunt brothers. They failed to take delivery of their silver bullion and amassed a huge stake in the leveraged futures marketplace. Outright ownership of physical bullion by buying ‘off exchange' and taking delivery of all silver on expiration of futures would eliminate this risk.

There is further confirmation of shortages of refined silver coin and bar products in the U.S. bullion marketplace. Not only are 1 ounce and 10 ounce silver bars not available in many wholesalers and large dealers but there are also issues with regard to silver eagles and silver maples with the mints being out of stock and with there being delays of some 3 to 4 weeks prior to delivery.


Platinum is trading at $1985/1990 (1200GMT).
Palladium is trading at $456/460 per ounce (1200GMT). 

By Mark O'Byrne, Executive Director

Gold Investments
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Dublin 2
Ph +353 1 6325010
Fax  +353 1 6619664
Gold Investments
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United Kingdom
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Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

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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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