Gold 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 Australia’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 industrialised 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 US 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 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 bullion dealers 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.
Central Banks Stop Lending Gold
Gold’s safe haven credentials are once again clear for all to see as gold has again risen when 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%.