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London Gold Market Report March 30, 2009, By: Adrian Ash, BullionVault |
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THE PRICE OF GOLD fell hard Monday lunchtime in London, dropping nearly 2% against the US Dollar to hit an 8-session low as world stock markets tumbled and the "risk averse" US Dollar and Japanese Yen both rose on the forex market.
Crude oil fell hard towards $50 per barrel – down 7% from last week's four-month high – while government bonds rose sharply but stayed on track for their worst Jan. to March performance since 1996.
The move in Gold Prices also wiped out an earlier 1.6% gain for UK and European investors.
"Trying to call the bottom for the [stock] market is impossible," said one Edinburgh fund manager to Bloomberg as the MSCI index lost 1.7% ahead of the US opening.
"We are not going to get anything sustainable until we get a solution to the financial system."
Preparing for this week's G20 summit of world leaders in London – from where a draft agreement was leaked to Germany's Spiegel and the UK's Financial Times four days before the meeting begins – US Treasury secretary Tim Geithner told ABC's Meet the Press yesterday that "some banks are going to need some large amounts of assistance," adding fresh uncertainty to his $500 billion rescue plan.
President Obama meantime forced General Motors' chief executive Rick Wagoner to quit after refusing the US auto-giant's latest request for $16 billion in emergency aid.
Here in the UK, Scotland's largest building society – the Dunfermline – was sold to Nationwide after collapsing under £26m ($37m) of losses.
The Spanish central bank seized control of Caja Castilla La Mancha, its first such intervention since 1993, using more than 41% of the country's Deposit Guarantee Fund to cover €3 billion ($4bn) in deposits held at the bank.
"Gold was under initial selling pressure on news that G20 meeting might discuss the possibility of IMF gold sales," says a note from Mitsui Bussan in Hong Kong.
Pulling in the other direction, however, Arkady Dvorkovich – chief economic adviser at the Kremlin in Moscow – repeated a call from both China and Russia to replace the US Dollar as the world's reserve currency with a basket of assets, telling Reuters that "We could also think about more effective use of gold in this system.
Within the next 10 to 20 years, reckons Kevin Chau, forex strategist for IDEAglobal in Singapore, speaking to the Wall Street Journal, "It's clear to see that the Chinese Yuan will be the world's reserve currency."
"US Treasury notes losing allure as 'safest' investment," says the New York Times, citing last week's "skittish response" to record-large sales of new government debt.
"Don't get caught if the Treasury 'bubble' bursts," advises USAToday, also citing Warren Buffett's recent pronouncement on the flight into US government debt by institutional buyers.
"If the Fed moves too slowly to pop the Treasury bubble when necessary," agrees the Denver Post, "inflation could flare."
Here in London, former foreign secretary David Owen says that the UK faces a run on its government debt, warning in The Sunday Telegraph that the country may have to accept "IMF disciplines to prevent a precipitate loss of confidence.
"There is an air of breathtaking unreality in Westminster and Whitehall that reminds me of 1975" – one year before the IMF was called into rescue the last Labour administration.
"Hard choices need to be taken now, not postponed until after an election in 2010."
Back in the gold market, however, "The one-month view for Spot Gold continues to favor a breakdown below $900," claims a note from David Barclay, commodity strategist at Standard Chartered Bank and an exponent of using Fibonacci sequences in trying to forecast future movements.
"That should allow for a test of $865 to $860 and lower."
New analysis from RBC Capital Markets also forecasts "significant volatility in the Gold Price, and we could see a trading range from $750 per oz to $1,000 in 2009."
Ahead of this coming Thursday's interest-rate decision from the European Central Bank – widely expected to bring new all-time lows in the returns paid to Euro deposits – RBC notes the surge in global money supply, aided by Quantitative Easing in the US, UK, Japan and Switzerland.
But the resulting growth in investor demand for Gold Bullion "could be overwhelmed by the potential for scrap gold sales from the Indian Sub-Continent, the Middle East and Southeast Asia," it says, "which make up approximately 71% of the global gold demand."
Adrian Ash
BullionVault
Gold price chart, no delay | Gold in 2009
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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