Gold "Shines as
as US and UK Left with No Choice
"But Default & Devaluation"
London Gold Market
The PRICE of WHOLESALE
GOLD BULLION clung onto Tuesday's sharp 4% gains early in London today, adding
to the "Obama Bounce" for Euro and UK investors while world stock markets fell
for the ninth session in thirteen during 2009 so far.
"Gold experienced massive
fund buying when New York markets opened" yesterday, notes Walter de Wet, senior
commodities analyst for Standard Bank in Johannesburg.
It rose $25 in less than
30 minutes. Stop-losses [for bearish Gold Futures traders] were triggered at
$860, and gold eventually reached $866.50.
"At these levels, good
physical selling set in, but was easily absorbed by the market. In New York,
buying slowed down with Mr. Obama's inauguration."
Today the Gold Price in
Sterling leapt once again as the British Pound sank on the foreign exchanges,
crushed by a fresh deluge of miserable data.
Growth in average UK
earnings (incl. bonuses) slid almost 1% below the rate of inflation in Dec.,
whilst unemployment rose to 6.1%, a ten-year high.
The rate of new
redundancies jumped to its fastest pace on the UK data agency's 12-year records,
and government swelled by £44.21 billion – the worst monthly cash requirement
ever – thanks to a futile injection of £20bn into Royal Bank of Scotland.
RBS has already lost a
further two-thirds of its stock market value this week alone, despite a fresh
£5bn injection of tax-payers' cash on Monday.
"[Both] the United States
and the United Kingdom stand on the brink of the largest debt crisis in
history," writes John Kemp, a columnist at Reuters, today.
"While both governments
experiment with Quantitative Easing, bad banks to absorb non-performing loans,
and state guarantees to restart bank lending, the only real way out is some
combination of widespread corporate default, debt write-downs, and inflation to
reduce the burden of debt to more manageable levels.
"Everything else is
The Pound Sterling today
flirted with a 22-year low vs. the US Dollar near $1.37 and sank to new all-time
lows vs. the Japanese Yen at €123.
UK investors seeking
shelter by Buying Gold saw spot bullion touch £626 an ounce – up nearly 14% in
just three trading sessions, and almost four times the price when Gordon Brown,
now UK prime minister, launched Britain's Infamous Gold Sales in 1999.
Both US and UK government
bond prices rose, however, as money continued to flee stock-market investments
for the "safety" of sovereign debt. And meantime in Brussels, head of the
European Central Bank (ECB) Jean-Claude Trichet told the European Parliament
that "There is presently no threat of deflation."
Cutting Eurozone interest
rates by just 0.5% to 2.5% last week – the highest amongst G7 leading economies
– "What we are currently witnessing is a process of disinflation, driven in
particular by a sharp decline in commodity prices," Trichet claimed.
The ECB yesterday
tightened its rules for making "liquidity" loans to European financial
institutions, demanding only those securities rated AAA when issued – and
maintaining at least single-A status from then on – as collateral.
The Euro rallied after
Trichet's EU testimony this morning, but held near 6-week lows vs. the Dollar at
"A globally synchronous
and aggressive fiscal and monetary stimulus may be needed to re-inflate the
global economy," writes Hussein Allidana, metals analyst in New York for
ex-investment bank Morgan Stanley, "and we think this continues to present
significant upside to Gold Prices.
growing global incomes and a renewed appreciation for gold should keep prices
Looking ahead for Gold in
2009, "investors [are] continuing to shift funds into allocated accounts from
other instruments," notes the latest Gold Investment analysis from
marketing-body the World Gold Council (WGC).
Describing the Shift to
Physical Gold Ownership seen throughout 2008, investors "shied away from any
counterparty risk whatsoever," the WGC adds.
"Many investors [also]
started to get nervous about the inflation outlook. Fed policy action –
including quantitative easing-type measures – coupled with further sharp
interest-rate cuts around the globe, and the possibility of a large (and quick)
fiscal stimulus package from the incoming Obama administration, [have] made many
investors nervous about future inflation prospects, increasing demand for gold
as a store of value."
In the near-four decades
since world currencies were fully freed from all gold-backing, the WGC analysis
notes, consumer-price inflation in the United States has topped 5% per annum
US and world stock markets
fell in five of those years, rose in four, and recorded an average drop of 0.5%
a year. Longer-dated Treasuries rose on average by 1.5% per annum (before
inflation), whilst commodities rose 7 years out of the nine, averaging a 9%
"But it was Gold that
truly shone," the WGC says, "rising in six years, declining in three, and
posting an average increase of 31%."
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.
Please Note: This article is to inform your thinking, not
lead it. Only you can decide the best place for your money, and any decision you
make will put your money at risk. Information or data included here may have
already been overtaken by events – and must be verified elsewhere – should you
choose to act on it.