Gold Investments Market Update – Gold has Largest One Day Up Move Since 1985

Gold

Gold surged to $912.30 in New York yesterday and was up $32.70; silver closed at $17.12, up 64 cents.

Gold surged in what was the largest one day move since 1985 as the dollar weakened, oil prices surged to new record highs and stock markets fell sharply. While gold was up some 3%, most U.S. stock indices were down some 3% and this continued in Asia and early European trading with gold rising to over $920. Although European indices have recovered somewhat as the morning has progressed, gold has continued to remain firm and safe haven demand has reemerged on decreasing risk appetite.

Next resistance for gold is at $934 and $953 and it looks increasingly like the recent consolidation may be over with very strong support now seen at $850. Given the confluence of so many bearish factors for bond and equity markets, we remain firm in our belief that gold will reach our 2008 prediction of $1,200 per ounce before the end of 2008.

Barclays Joins RBC in Severe Warning and RBC and Russians Diversify into Gold

We appear to be about to embark in a period of increasing turbulence and instability in financial markets which will result in higher gold prices due to its safe haven characteristics. Now Barclays have joined Royal Bank of Scotland in issuing a severe investment warning.

Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the U.S. Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall “below zero”.

Tim Bond, the bank’s chief equity strategist said that we are now in “a nasty environment. . . . There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth.”

Gold is primarily an asset of wealth preservation, and large institutions are coming to realise this again. The Royal Bank of Scotland has given gold a 25 per cent weighting in its latest investment fund targetted at expatriate customers. Performance is weighted equally across four sectors: emerging equities, developed equities, property and gold.

Yesterday came news that Russia’s oil funds may invest in gold. Moscow-based agency RIA Novosti said, citing a finance ministry official. Russia’s Reserve Fund and the National Wellbeing Fund were worth a combined $161.9 billion on June 1. The Russian central bank along with the Chinese and other ‘emerging’ market, second tier central banks has been increasing its gold bullion reserves in recent months.

As more institutions, sovereign wealth funds and central banks increasingly diversify into gold, we will see gold rise to multiples of its current price as it is such a tiny marketplace when compared to the size of equity, bond and currency markets.

Today’s Data and Influences

Commerce Department data due out Friday is personal income, personal consumption and PCE inflation (which bizarrely excludes ‘volatile’ food and energy components). The only release of note today in the UK is the current account deficit which is expected to widen to 12.5 billion pounds.

Silver

Silver is trading at $17.54/17.60 per ounce (1230 GMT).

PGMs

Platinum is trading at $2062/2069 per ounce (1230 GMT).
Palladium is trading at $466/470 per ounce (1230 GMT).

Mark O'Byrne

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