Daily Market Update

Gold Investments Market Update – Gold Surges to New Record Highs in British Pounds

Gold rose strongly on the inauguration of the 44th President, President Obama, yesterday – rising some 2% in dollar terms. It subsequently gave up some of those gains in Asia prior to rallying again in early European trading to over $860/oz. And gold’s strength came despite a very strong dollar yesterday. Importantly, this meant that gold surged in euro and to new record highs in British pounds at £624.85/oz This morning’s London AM fix (21/01/09) was $860.50 (USD), £624.59 (GBP) and €666.02 (EUR). A gold price of £624.59 is a new record high for gold in sterling terms. Gold in sterling is up 11% so far in 2009 while the FTSE is down by some 6% (see table). Thus UK investors and savers who have prudently diversified into gold are realising the wealth preservation qualities of gold. As is clearly shown in the performance tables and charts, gold continues to outperform most assets in all currencies. This clearly shows that gold is hedge against not just dollar risk but against currency and macroeconomic risk in general. Gold’s record price in euro is €675.85 and that price looks set to be surpassed in the coming weeks as problems in the Eurozone economies (especially the Club Med, Eastern European and Irish economies) deepen (see table and chart below). Despite the understandable joy and euphoria of the inauguration of President Obama, stock markets in the U.S. and internationally are under severe pressure again with European markets down sharply this morning with concerns regarding the international banking and financial system mounting again. President Obama has inherited the most severe economic crisis since Franklin D. Roosevelt was sworn in 76 years ago. The Dow’s 4 percent slide yesterday was the most on an Inauguration Day in the indices 112-year history, according to data compiled by Bloomberg and the Stock Trader’s Almanac. Demand for gold remains very robust as seen in the surging ETF holdings (the State Street SPDR gold ETF increased by a large 250k oz yesterday alone) and in investment demand for gold coins, bars and certificates remaining high internationally. Risk aversion, systemic risk and the risk of a deep global recession means that gold demand will likely remain robust throughout 2009. A GBP Perspective of the world markets Gold Proved Metal in 2008 and Will Again in 2009 The World Gold Council reports that gold outshone other assets in 2008 amid concerns over deepening global financial crisis. Gold proved its metal in 2008, according to World Gold Council’s latest Gold Investment Digest, providing a safe haven and long term store of value for investors in record volume and outperforming many other assets in relative price and volatility terms. Despite one of the most tumultuous years in financial markets since the Great Depression, gold ended the year on a firm footing recording its eighth consecutive annual price increase in dollar terms and surging in British pound terms. The last three months of 2008 was a quarter of two halves. While distressed gold sales by some institutional investors meeting margin calls on other assets had a dampening effect on price in the first few weeks of the final quarter, by mid November broader recognition that the dire financial situation was likely to endure for some time, fears about the credit system and future inflationary impact of shifts in monetary policy and the dollar resuming its secular decline led gold to rally by around $150/oz. Gold, therefore, closed the year at US$869.75.oz, up 4% from the same period in 20071. Gold price volatility remained high by historical standards at the end of the year, at 37% (gold’s long-run price volatility is around 12.5%), although still below most other asset classes. However, underpinned by robust and diverse market fundamentals, gold traded in a tighter range than other financial assets, major world indices and most other commodities. “Gold’s performance over the year is impressive considering the massive wealth destruction that took place elsewhere in financial and commodities markets,” said Natalie Dempster, Head of Investment, North America for World Gold Council. “Impacted to a lesser extent by the financial crisis, which affected equities, and declining industrial demand, which affected physical assets, gold outperformed global equities and all major commodities during 2008.”

Mark O'Byrne
Executive Director

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