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Emergency Central Bank Interest Rate Cuts Boost Gold

Commodities / Gold & Silver Oct 08, 2008 - 08:29 AM GMT

By: Mark_OByrne

Commodities Best Financial Markets Analysis ArticleGold rallied yesterday on increasing risk aversion as stock markets continued to crash internationally (gold closed at $880.70 up $18 and silver closed at $11.34 up 7 cents).

Gold has surged to new record highs in most major currencies including the Australian dollar, British pound (£517) and Euro (€662) as the global contagion deepens. Therefore, gold is again acting independently of the dollar and despite recent dollar strength has rallied sharply in all major currencies.

Breaking news of coordinated central bank aggressive interest rate cuts of 50 basis points  (following Australian's 100 basis point cut yesterday) should lead to gold surging in value in the coming months. Competitive currency devaluations look increasingly likely in order to combat massive asset deflation and wealth destruction.

Nationalisation and quasi nationalisation of banking systems and digital money printing on a scale not experienced in industrialized countries since Weimar Germany will make gold an absolutely essential asset to have in all portfolios in the coming months.

Central Banks Stop Lending Gold
Central bank leasing of gold is being greatly curtailed due to the massive systemic risk and financial contagion being experienced in banking systems and in the international markets  - this is yet another very bullish development in the gold market.

The FT reports that “central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market, in a move that on Tuesday sent the cost of borrowing bullion for one-month to more than twenty times its usual level.  Traders said the jump reflects the fact that central banks – mostly European – have almost completely stopped lending gold in the last few days and are not rolling forward old leases after maturity. This is because of fears that some borrowers might not repay their bullion loans if they are engulfed by the financial crisis.”

Central banks and institutions are becoming net buyers of gold again (particularly Middle Eastern, Asian and Chinese central banks and other creditors of the U.S. with their humongous dollar reserves) and this will lead to markedly higher prices in the coming weeks and months.

Bullion rationing and shortages are intensifying internationally as the tiny gold market ( it is extremely small vis-à-vis the stock, bond, currency and derivative markets) cannot cope with the unprecedented demand experienced in recent weeks. The speculators on Wall Street though shorting of the gold market have created an artificially low “paper” gold price on the COMEX while physical gold prices remain robust with premiums on all physical bullion products surging due to depleted inventories in the some of the largest bullion dealers in the world, rationing by refiners, government mints and wholesalers, queues on the street outside retailers and bullion shortages internationally.

The Berliner Zeitung newspaper reports that most traders were refusing new orders at the moment. German gold dealers are running low on stocks of gold bars and gold coins as customers dump stocks and shares and take refuge in precious metals.

The same phenomenon is being experienced in the UK, US and internationally.

Gold's Safe Haven Credentials
Gold's safe haven credentials are once again clear for all to see as gold has again risen as stock markets have collapsed around the world. There is nothing “perceived” about gold's safe haven credentials as they are an established fact as seen in the tables above and below.

Also, claims that gold mining shares as akin to gold and are a form of safe haven are being badly found out.

Gold is up 14% in the last month and up 25% in the last 12 months while stock markets and property markets internationally have fallen sharply (as per the Performance Table above) . In the last 5 years gold is up some 144% while most stock markets are down in the period. Since October 2007, the S&P 500 has fallen 43% while gold is up 27%.

Correction Date S & P 500 Physical Gold Gold Mining Shares
May 46 - May 47 -23 0 -28
June 48 - June 49 -17 0 +3
July 57 - Oct 57 -15 0 -18
Dec 61 - June 62 -22 0 -3
Feb 66 - Oct 66 -17 0 -10
Nov 68 - May 70 -28 +4.11 -35
Jan 73 - Oct 74 -41 +142.87 +144
Sept 76 - Mar 78 -16 +60.72 +43

Aug 87 - Dec 87




July 90 - Oct 90




 October 07 - Today




Note: Gold price was "fixed" and the US dollar was backed by gold during the first few episodes, hence physical gold was cash and registered no gains and no losses.

Gold and Silver Investments Ltd -


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.

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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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