It is a historic day for the world with the inauguration of the 44th President of the United States of America. Gold has rallied by more than 2% despite continuing dollar strength and oil having collapsed 7% to just over $34 per barrel (Light Sweet Crude Oil Future - Combined - FEB09 : -7.6%) . While the dollar is up on hopes that President Obama can turn around the ailing US and indeed the global economy, stock markets internationally are under pressure again today with increasing concerns regarding the international banking and financial system.
Gold rallied on the open in Asia to over $845/oz overnight before falling on a stronger dollar, then rising again in early morning trade in Europe before falling again to $838/oz, some $3/oz below its close on Friday. Gold fell 1.5% last week but surged 4% on Friday alone (silver was down 0.5% for the week but surged over 7% on Friday). As has been the pattern in recent years, stock markets fell by far more than gold and silver last week with the S&P 500 down 4.5%. The FTSE 100 was down 6.8pc - its worst week since November.
Gold is marginally higher today but has fallen to one month lows as markets await the ECB interest rate decision. The ECB is expected to cut by 0.5% today and that has put the euro and gold under pressure as the dollar has strengthened in recent days. However, the deteriorating outlook for the US economy as seen in the very poor retail numbers yesterday (sixth monthly fall) will likely see the dollar come under renewed pressure in the medium term.
Gold is marginally lower today despite sharply weaker oil prices (Light Sweet Crude Oil Future - Combined - FEB09 : -5.14%) and a slightly higher dollar (US DOLLAR INDEX: 83.01 +0.6%). There was significant volatility last week and such volatility often portends a big move up or down. Given the strong fundamentals, gold’s next move is likely to be up, especially as investment demand for gold coins, bars, certificates and exchange traded funds remains very robust.
There are interesting parallels between the Madoff Ponzi scheme and the US and many other social security schemes internationally. As the huge bulging demographic that is the Baby Boomers retire, the smaller demographic of the next generation will have to fund their retirement. As the Baby Boomers retire and begin to withdraw their funds from Social Security system there will be huge redemptions from US and other stock markets as much of their retirement funds are invested in the stock markets.
Gold has fallen again today and is down some 1% but continues to consolidate between $830/oz and $890/oz. Gold should remain well bid given the degree of international macroeconomic and geopolitical risk challenging us as we enter the New Year. The Middle East tensions continue to escalate and oil is up another 2.5% again today to some $50 per barrel again. Silver has outperformed even gold in the last 30 days and is trading very well – up nearly 17% versus gold’s rise of 12%.
Gold has commenced the New Year as it did in 2008 – up sharply in early trading before selling off somewhat. Gold surged (along with oil) on the open in Asia on geopolitical concerns with the Israeli military offensive against Gaza escalating. However, with oil giving up some of its earlier gains and the dollar stronger against most currencies so far this morning, gold has given up its earlier gains. The reemergence of geopolitical concerns in the Middle East (and with Russia) is likely to see gold well bid in the mid $800s/oz.
Gold Outperformed Most Assets in 2008 - Gold Up 3.9% in USD; Up 5.3% in EUR and Up 34.4% in GBP. Today’s London AM fix (23/12/08) was $844.01 (USD), £570.85 (GBP) and €603.72 (EUR). At the start of 2008 (January 2nd 2008), gold’s London AM Fix was at $840.75 (USD), £424.81 (GBP) and €573.34 (EUR). Thus, in 2008 gold is up by 3.9% against the dollar, up 5.3% against the euro and up 34.4% against the pound. The London AM Fix is a widely followed benchmark for physical gold and silver prices and is reported in major newspapers and at many gold-related websites. 23-Dec-08 Last 1 Month YTD 1 Year 5 Year Gold $ 845.15 5.77% 1.42% 4.16% 105.83% Silver 10.80 12.07% -26.85% -24.60% 89.21% Oil 39.82 -20.93% -59.84% -57.45% 24.63% FTSE 4,283 13.27% -33.66% -33.43% -3.55% Nikkei 8,724 10.27% -42.85% -42.82% -15.89% S&P 500 872 8.95% -40.64% -41.28% -20.25% ISEQ 2,384 2.72% -65.62% -65.57% -51.03% EUR/USD 1.3990 11.15% -4.08% -2.71% 12.85% © 2008 Goldassets.co.uk This has led to a sharp outperformance of gold vis-à-vis every major equity indices and commodity in the word, not to mention most property markets (see Chart and Performance table). In March, gold fell from a record nominal high of just over $1,000/oz but it is important to remember that gold is only down some 15% from that record nominal high and this is after surging nearly 60% in the previous 7 months. In the seven months from the start of the credit crunch and the collapse of Bear Stearns, gold had surged by nearly 60% - from $640 in August 2007 to over $1,000 in March 2008.
Gold fell yesterday on a bounce in the dollar and renewed weakness in the oil and commodity markets. While gold has clearly decoupled from oil and commodities in recent weeks, due to its safe haven currency credentials, oil and the commodities can still effect gold’s performance in the short term. As can weakness in stock markets. Gold trading on the COMEX in the US opening hours has been increasingly correlated with stock markets in recent weeks and months . This correlation with stock markets is however of a short term nature as can clearly be seen in gold’s outperformance of equity markets in recent months and years. The volatility in currency markets is huge and the dollar has rebounded strongly in the last 24 hours (from over 1.47 to back to 1.40 ) which is putting pressure on gold as is the weakness in stock markets. However, the stock market weakness and very uncertain outlook for 2009 will lead to further safe haven demand. Silver to Continue to Outperform Gold and Other Assets in 2009 Silver has fallen sharply in recent months but will still outperform all major equity indices in 2008. This is quite an achievement especially given the fact that silver has surged in value in recent years and particularly in late 2007 and the start of the financial and economic crisis.
Gold's safe haven credentials have been reaffirmed in recent days as the dollar's safe haven appeal is increasingly being questioned (see News and Commentary section of homepage). The scale and speed of the decline of the dollar (and to a lesser extent, sterling) in recent days is unprecedented. The dollar has fallen against all major currencies but especially the euro.
The surprise move by the Fed to lower the Fed funds rate by more than 75 basis points to a record low and an unprecedented band between 0.25% and 0% led to sharp falls in the dollar (low of 1.4188 to the euro) and a spike in the gold price to over $859.40/oz. The Federal Reserve has embraced 'Helicopter Bernanke's' "inflate or die" massive reserve and money creation academic theories in an attempt to prevent deflation. Markets realise that this will lead to a lower dollar and higher gold prices in the medium and long term.
Gold rose again yesterday and the dollar fell sharply in anticipation of the Federal Reserve further slashing interest rates to record lows of 0.5% today. In a desperate bid to prevent a recession deepening, the Federal Reserve is prepared to slash interest rates to an all-time low near 0% today. With ZIRP (zero interest rate) policies, the US and global economy and monetary system is entering unchartered territory which is leading to continuing safe haven demand for gold.
Gold rallied sharply last week and was up nearly 9% despite continuing uncertainty and a very mixed performance in stock markets. The US dollar index fell some 4% on the week and it looks increasingly likely that the dollar may have topped out and may soon resume its bear market.
Gold rallied sharply yesterday, for the fourth day in a row, on sharply higher oil prices (some 10%) and a weaker dollar. Gold gave up some of its gains overnight in Asia as the dollar bounced after recent sharp losses in volatile trade. Gold’s rally yesterday had nothing to do with an increase in risk appetite. If that was the case, why have stock markets internationally been falling sharply again in recent days and yesterday?
There have been a spate of articles in the press recently including the Personal Finance section of the Irish Times touting jewellery and diamonds as safe haven “rock solid” investments. Rock solid investment Looking for a rock-solid investment? A girl's best friend and a smart way to invest This is dangerous nonsense and irresponsible journalism of the highest order. Investors have lost enough money in recent years due to appalling investment “advice” regarding equities and property and it is important they do not compound that by “investing” in diamonds and jewellery. As ever real diversification in all asset classes is essential.
Gold rallied sharply yesterday, for the third day in a row, on higher oil prices and a weakening dollar.
Gold rallied for a second day yesterday on concerns regarding the deepening US recession and the dollar. Gold has continued to rally in Asian and early European trading. The bounce in oil prices is likely lending support as is continuing robust physical demand internationally. Asian equity markets were largely positive overnight but European ones are again under pressure this morning. The global deflationary spiral appears to be accelerating as are desperate attempts by politicians and central bankers to reflate their way out of the recession.
It wouldn't be suprising if you had never heard of backwardation. Though many commodities markets are frequently in backwardation, especially for seasonal or perishable/soft commodities, it has only happened twice in history in precious metals.