Gold Investments Market Update – Gold Up 31% in First Year of Credit Crisis

Gold

Gold finished trading in New York yesterday at $874.40, down $4.50 and silver was down 11 cents to $16.46. Gold has again recovered somewhat in Asian and early European trading and is trading at $883.00/883.40 per ounce (1058 GMT).

The credit crisis continues as evidenced in the world’s largest insurer, American International Group, reporting a quarterly loss of $5.36bn with profits wiped out by further mortgage related writedowns. In the UK house prices fell a further 1.7% in July as the decline in availability of mortgages, rising inflation and general economic uncertainty led to further falls in property prices. Not to mention the worryingly poor results from Freddie Mac yesterday.

Economic and financial conditions are unlikely to improve anytime soon – Freddie Mac’s Chief Executive Officer, Richard Syron, sees no end in sight to the worst housing slump since the Great Depression. Some have warned that Freddie and Fannie look set to be insolvent in the coming months due to the extent of home loan defaults.

The credit crisis is degenerating into an insolvency and systemic crisis. Alan Greenspan has called the current credit crisis, an “insolvency crisis” and has said that will not end until home prices in the United States begin to stabilise. “This crisis is different – a once or twice a century event deeply rooted in fears of insolvency of major financial institutions,” Greenspan wrote. Huge bailouts will be required for banks, brokerages and now there is even talk of bailouts for the ‘big three’ car makers.

All these bailouts will lead to the dollar coming under further pressure in the coming months which should see gold reach $1,200/oz in the coming months.

The credit crisis is one year old and as can be seen in the chart below and the table above, gold is up by more than 30% and has vastly outperformed most other asset classes and will likely continue to do so.

An example of gold’s historic role as a safe haven asset in times of economic uncertainty is seen in the following data. The industry performance of Physical Gold Versus the S&P 500 during eleven stock market declines of 15% or more in the Post-War period (since 1946).

Gold and Silver

Gold is trading at $885.20/885.70 per ounce (1045GMT).
Silver is trading at $16.61/16.65 per ounce (1045 GMT).

PGMs

Platinum is trading at $1595/1605 per ounce (1045 GMT).
Palladium is trading at $353/358 per ounce (1045 GMT).

Mark O'Byrne

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