Gold Investments Market Update

Gold
Gold was up $2.10 to $1000.80 per ounce in trading in New York yesterday while silver was down 25 cents to $20.36 per ounce. Gold surged on the open in Asia yesterday and reached a new record high ($1030.80 per ounce). Subsequently, with U.S. stock markets miraculously recovering, gold succumbed to profit taking and ended the day only slightly higher.

In Asian trading overnight, gold traded sideways and then in early European trading, gold has showed some strength again and rose to nearly $1010.00 per ounce.

The London AM Gold Fix at 1030 GMT this morning was at $1005.75, £499.13 and €635.786 (from $1023.50, £508.45 and €649.51 yesterday). Gold is surging in all major currencies as seen in the GBP/GOLD and EUR/GOLD charts below. Showing that gold’s strength is not simply due to dollar weakness. Dollar weakness is just one of the many, many factors leading to higher gold prices in all (fiat) currencies.


Gold’s fundamentals are as strong as ever as this, the worst financial crisis since the Wall Street Crash and the Great Depression, continues to worsen and deepen. (Although Weimar Germany might have more parallels than the deflationary Gold Standard constrained 1930s America).

Systemic risk has not been as great as this since after the crash in 1929 and the new fangled massively leveraged global financial system is in danger of unraveling.

While talk of ‘contagion’ might be considered alarmist, so would talk of nationalisation of Northern Rock and bankruptcy of Bear Stearns some 6 short months ago. Global financial contagion (with its epicentre on Wall Street and in the U.S.) is now a real possibility as acknowledged by Anoop Singh, IMF director for the Western Hemisphere Department. He said yesterday that the mounting global credit crisis could result in financial “contagion” that could wipe $800 billion of value from the books of U.S. and global financial institutions. He cited a high likelihood of a U.S. recession and said he sees losses from the U.S. subprime mortgage market crisis resulting in widening losses for European banks. That is putting it mildly.

Traders and analysts are now looking at the next dominoes to fall with Citigroup and Lehman Brothers in the U.S. and HBOS, Alliance and Leicester and Bradford and Bingley in the UK looking vulnerable. Unfortunately, financial contagion looks increasingly likely and this would result in many more Northern Rocks and Bear Stearns and the value of many assets becoming worth fractions of their previous worth. A worst case scenario is a massive financial panic resulting in stock and bond market crashing, many runs on banks and the collapse and nationalisation of much of the banking system in the western world.

Gold remains the ultimate safe haven and has retained and will retain its value throughout history. Particularly with history having a terrible habit of repeating itself.

Blind fate in central bankers and politicians miraculous powers to rectify this situation is dangerous and delusional. Given the current financial crisis, all investors should have an allocation to gold bullion and the allocation should be at least 20% of a properly diversified portfolio. Holding 25% in gold, 25% in cash would be appropriate as an extremely cautious, defensive and prudent investment strategy is merited now more than ever.

Support and Resistance
Gold’s support is now at $990 and $960. Resistance is at yesterday’s new record nominal high of $ $1030.80.

Silver
Silver is trading at $20.37/20.40 at 1200GMT.

PGMs
Platinum is trading at $2010/2020 (1200GMT).
Palladium is trading at $481/486 per ounce (1200GMT).

Mark O'Byrne

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