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Gold and Stocks End October With Huge Loss of Value

Commodities / Gold & Silver Oct 31, 2008 - 08:39 AM GMT

By: Adrian_Ash

Commodities SPOT GOLD BULLION PRICES bounced from $725 an ounce early Friday, nearing the month's end nearly 10% down against most major currencies – including the Dollar – as world stock markets reversed this week's rally.


Measured on the MSCI world index, global equities have lost one-fifth of their value in October and stand 42% down from New Year's Day.

Volatility in US stock prices leapt this October to untold record highs, outstripping the pace and breadth of daily changes that hit in 2002 and 1987, as well as the severe bear-market violence 1970 and 1974.

"The greenback's gravity-defying strides should keep precious metal investment sentiment uncertain throughout the day," advises Manqoba Madinane at Standard Bank in Johannesburg.

"The Dollar could ignore any bearish signals from [today's] US confidence data, resulting in some precious metal investors choosing to watch developments from the sidelines."

With Gold Bullion on the way to its worst one-month drop since Feb. 1983, stock-market prices also fell once again across Asia and Europe, despite a fresh cut to Japanese interest rates.

Cash deposits already paid less than 1% to Yen savers, just as they have since the start of this decade. Now borrowing Yen costs just 0.3% per year from the Bank of Japan. But the Nikkei 225 in Tokyo still closed Halloween almost 24% below the start of October.

Here in London the FTSE100 neared its Oct. close more than 15% down for the month, while the German Dax has lost 16%.

The Cac40 in Paris stands 17.5% lower from the end of Sept.

"In the midst of market mayhem, the most popular safe haven investors seek is gold," says today's edition of BusinessWeek .

"But gold's ups and downs this year, from a high of over $1,000 to a low of under $700, have left some investors looking for a less buffeted shelter from the storm."

Pointing to "safe investments when gold is too volatile," BusinessWeek suggests buying silver, Swiss currency and equity funds, or farmland.

Silver has been twice as volatile as gold this month, however – matching its relative violence since Jan. 2007, in fact.

So far this year, the Swiss Franc has lost 2% of its value vs. the Dollar, while Swiss equities have been half-as-volatile again as gold during October's mayhem.

As for farmland, the magazine itself quotes one US financial advisor, George Feiger of Contango Capital, saying that "Farmland growing corn has lost a lot of value this year. Farmland didn't do well in the Great Depression."

BusinessWeek famously announced the "Death of Equities" in 1979, just as a two-decade bull market in US stocks was about to begin. Come Oct. 1999, it said gold was a "less stable store of value than ever before."

Since then the Gold Price has tripled and more for US investors. ( Learn more about the Gold & the End of History here... )

"There is absolutely no question that when you see these kind of ranges and volatility for gold, you are going to step aside because you can get very hurt," reckons Bruce Dunn, vice-president at US brokers Auramet Trading.

Also referring to Gold Futures rather than the physical Bullion market, "it's forced liquidation hitting every commodity," says Bill O'Neill at Logic Advisors – also in New Jersey and also talking to Reuters.

"You look at these markets, whether it is agricultural or industrial commodities, and we are not trading on fundamentals, we are trading on money flow."

Today the price of crude oil fell sharply from this week's rally, trading back below $64 per barrel.

Nickel and copper reversed all of Thursday's 10% gains at the London Metal Exchange (LME), while silver fell hard from yesterday's 11-session high, but held 10% above this week's two-and-a-half year low.

Over in India – the world's hungriest market for physical Gold Bullion , where Tuesday's Diwali festival marked an auspicious date for Buying Gold on the Hindu calendar – "sales have been good owing to the dip in prices," says Pathi Mahesh, head of the Bangalore Jewelers Association, speaking to the Economic Times .

"Retail sales in the last four to five days have been better than last year."

Contrary to bullish reports from India's banks and jewelry trade bodies, however, "they imported gold hugely in the second week of September," writes Daman Prakash Rathod, head of MNC Bullion in Chennai, "and only a softening of prices in the second week of October cleared those stocks.

"The relevant question now is whether any fresh import of Gold took place in October? The answer is sadly no."

Meantime on the supply-side, "Mining companies of all sizes are increasingly announcing reviews, slowdowns or deferrals of projects with the deterioration in mineral prices over the past two months," reports South Africa's Business Day .

"Their news seems likely to fulfill predictions from Credit Suisse this week that about $50bn of $75bn in capital expenditure planned for next year would be delayed."

Credit Suisse's report – which forecasts a loss of up to 300 million tons of iron, five million tons of copper, ten million tons of aluminum and one million ounces of platinum – may work to reignite sharp gains in metal prices "as not enough new capacity has come on stream in the recent bull market."

Following this week's slew of poor results from the world's major Gold Miner Stocks , AngloGold Ashanti – the world's fourth largest gold producer – says it will delay new projects by 6-12 months.

CEO Mark Cutifani also wants to reduce output through to December, waiting for higher Gold Prices in the New Year, which he believes must reach $1,000 an ounce to encourage fresh investment in new drill sites.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 2008

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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