Gold Investments Market Update – S&P 500 Real Return in 10 Years is Less Than Zero

Gold

Gold finished trading in New York yesterday at $926.30, up $5.40 and silver was up to $18.07, up 23 cents. Gold rose again in the New York Globex electronic market and in early trading in Asia and has remained firm in early European trading.

With geopolitical risk remaining high and financial risk elevated (as seen with U.S. financial stocks yesterday experiencing their largest one day fall since the start of the current financial crisis nearly a year ago – meaning that the benchmark S&P 500 is officially in a bear market) gold is again receiving safe haven and inflation hedging investment flows which is resulting in higher prices.

The S&P 500 was down by 2.3% yesterday on further concerns regarding Fannie and Freddie (the government sponsored mortgage buyers) and the S&P 500 is now down by more than 20% since its record high last October. Importantly, the real return on the S&P 500, the benchmark U.S. equity index, since 1998, after subtracting the underestimated consumer price inflation (CPI) is an extremely poor – minus 2%. The last time this happened was in 1983. Showing that those who insist that this is not as bad as the 1980s have not realised the magnitude of the huge financial, economic and systemic risks facing the U.S. and global economy.

Oil prices have remained flat after yesterday’s small move up and the dollar is also listless and range bound and thus gold will likely take its direction from equity markets. Most equity markets in Europe are down this morning and this is likely leading to a safe haven bid in the gold markets .

While oil was up very marginally yesterday, gold again outperformed oil and was up more than 0.5%.

Gold has now on three consecutive days tested the 100 day moving average at $915 and is in a tight range between $915 and $935. This will encourage bulls who are likely to feel more confident about going long in the coming days which could see us challenge the $945-$950 level. A firm close above this level will be needed prior to retesting the psychological level of $1,000 per ounce.

Today’s Data and Influences

U.S. unemployment claims are due out later today which are expected to come in at 399,000 for the week. Markets will also seek direction from the testimony before the Senate House Committee later of both Ben Bernanke and Henry Paulson on financial market regulation and the need for broader Federal Reserve powers.

Silver

Silver is trading at $18.20/18.25 per ounce (1200 GMT).

PGMs

Platinum is trading at $1980/1990 per ounce (1200 GMT).
Palladium is trading at $445/450 per ounce (1200 GMT).

Mark O'Byrne

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