Gold Investments Market Update – Gold Rising Due to Macroeconomic, Financial and Counterparty Risk

After last week’s strong gains, gold continued to surge in all currencies yesterday reaching new record highs in euro and pounds sterling. Prices remained firm in early trading in Asia prior to giving up some of yesterday’s gains. The convincing technical close well above previous resistance should see gold (and silver) soon embark on the next leg up in their secular bull markets. Resistance for gold was at $880/oz and this may well become support. Next resistance is at $925-$930/oz and a daily or weekly close above that level would likely lead to gold retesting the psychologically important mark of $1,000/oz again. The dollar has come under selling pressure versus a number of currencies (down some 0.5% against the euro – 1.325 EUR/USD) and this should see gold remain well bid. Continuing weakness in stock markets should be supportive also. Especially in the light of the deteriorating macroeconomic (tens of thousands of job losses announced internationally) and financial situation (Fannie and Freddie, the largest lenders of US mortgages seeking an additional $51 billion to prevent bankruptcy and rapidly increasing cost of bailouts, now in the trillions, in order to prevent a possible systemic collapse of the financial system). With systemic risk remaining elevated, counter party risk has not been so high since the Great Depression (and maybe higher than even then) and this is leading to safe haven demand for gold bullion as it is the only asset that does not have third party liability. As a physical asset, bullion is inherently valuable in and of itself. This is to say, physical precious metals have tangible, intrinsic and innate value in and of themselves, and they are, therefore, the only asset class that is not some outside entity’s or third party’s liability (as is the case with a stock or government or corporate bond). Thus, the investor who owns the physical asset directly, and whether held in his/her personal custody or stored safely in his/her name in an insured account at a qualified facility, will enjoy the sense of security one derives from knowing that their investment portfolio is strengthened by the presence of an actual tangible asset with an intrinsic value, and not just a piece of paper, or derivative product dependent on the performance of a third party or the health of the wider economy.

Mark O'Byrne
Executive Director