Gold Investments Market Update – Fannie, Freddie ‘Insolvent’ and Lehman Brothers May be Next Bear Stearns

Gold

Gold finished trading in New York yesterday at $940.20, up $13.90 and silver was up to $18.24, up 17 cents. Gold rose again in the New York Globex electronic market before trading sideways in trading in Asia and it has risen sharply again in early European trading to above $950 per ounce.

Gold continues to rally on the surging oil price (which is back near record highs), surging commodities and renewed weakness in the dollar. Not to mention safe haven buying on geopolitical risk in Iran. Oil is up nearly 2% again this morning after yesterday’s nearly 4% surge. Yesterday oil rallied from a low of $135.58 to a high of $142 a barrel and today it is up to $144.04 so far today (Light Sweet Crude Oil Future  – AUG08).

A possible oil strike in Brazil, continuing tensions in Nigeria and further missile tests in Iran all contributed to the latest spike in oil prices which brings oil back close to its recent record high of $145.68. The CFTC statement that they found no evidence of manipulation in the oil market also contributed to the oil surge. Indeed much of the specualtion is on the short side in the oil, gold and silver markets.

This is sure to lead to further inflation hedging allocations to gold especially as other commodity prices in particular the base metals are surging again.

Fannie, Freddie ‘Insolvent’ and Lehman Brothers May be Next Bear Stearns

There is also heightened financial and systemic risk as posed by the possible insolvency of Lehman Brothers, Fannie Mae and Freddie Mac.

Mortgage lenders Fannie Mae and Freddie Mac are “insolvent” and may need a U.S. government bailout, former St. Louis Federal Reserve President William Poole was quoted as saying in an interview with Bloomberg. “Congress ought to recognise that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,” Poole was quoted as saying in an interview held on Wednesday. Chances are increasing that the government may need to bail out the two mortgage companies, he was also quoted as saying.

Lehman Brothers shares plunged again and nervous investors are concerned about regulators’ statements that they would not bail out all financial institutions. Lehman fell 12 percent, to $17.30. This year, it has lost 70 percent of its value. The cost of insuring Lehman’s senior unsecured debt, a barometer keenly watched by traders, reached its highest levels on Thursday since the Bear Stearns collapse in March.

Rumors are running rampant that a major U.S. institutional investor, PIMCO, has cut trading limits with one of the major investment banks, Lehman. A variation of the rumor is that they have cut limits with a number of prime brokers. This is helping create weakness in the dollar and leading to safe haven buying of gold.

Today’s Data and Influences

The market will turn its attention to today’s U.S. trade balance and the University of Michigan Consumer Confidence report released at 1.30pm and 3pm respectively.

Disappointing figures from General Electric could also affect markets.

Silver

Silver is trading at $18.37/18.40 per ounce (1100 GMT).

PGMs

Platinum is trading at $1980/1990 per ounce (1100 GMT).
Palladium is trading at $445/450 per ounce (1100 GMT).

Mark O'Byrne

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